Joint 2016 International Conference on Economics and Management

Engineering (ICEME 2016) and International Conference on Economics and

Business Management (EBM 2016)

DEStech Publications, Inc.

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Joint 2016 International Conference on Economics and Management Engineering (ICEME 2016)
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Table of Contents

PrefaceICEME 2016
PrefaceEBM 2016

CommitteesICEME 2016
CommitteesEBM 2016

SESSION 1: ECONOMICS
Climate Change and Economic Policies in China . . . . . . . . . . . . . . . . . . . . . 1
RONG KANG and BAO-PING REN
The Inconsistency of Qualitative and Quantitative Fluctuations
in Economic Growth of China and Interpretations. . . . . . . . . . . . . . . . . . . . 8
BAO-PING REN and RONG KANG
Authorized Economic Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
HUI-HUA HUANG
Research on the Combined Poly-instance Purchase Decisions
in a Cloud Computing Market Based on Clients. . . . . . . . . . . . . . . . . . . . . 19
YU-LU LIU, DONG-LIN CHEN, MIN FU and XIAO-XIA LUO
Analysis of Business Development and Entrepreneurship in
Fujian Province, China, with Recommendations for
Policy Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
GUO-CHAO LIN
Research on the Interaction of Chinas Knowledge-Intensive
Business Services and Manufacturing Upgrading. . . . . . . . . . . . . . . . . . . . 34
HUI FANG, TIAN ZHAO and YUE-QIAN ZHANG
The Prediction of Secondary Exponential Smoothing of the
Total GDP of Mongolia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
BO LIU, WEI-GUO LI, XIN-TAO WANG, HUI-LONG JIN,
XIAO-YANG CHEN, XIAO-TING LI and YUE-HU LIU
Research on the Comparative Advantage of Export Commodities
in Taiwan During 20002014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CHUN-PENG ZHANG and RONG KANG

Interaction Mechanism and Comparative Study of Talent

Resources and Economic Growth in Xian . . . . . . . . . . . . . . . . . . . . . . . . . 51
JIE-YI PAN, CONG-CONG FAN and PING-XIAO HOU

The Influence of Cultural Creativity on City Marketing:

The Case of Quanzhou . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
YING ZHU and YA-TING ZHOU

Sales Forecast for Amazon Sales Based on Different Statistics

Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
JIAN-HONG YU and XIAO-JUAN LE

The Discussion on Fostering New Competitive Advantage

of Chinas Foreign Trade Enterprises in the Post
Economic Crisis Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
XIN CHENG

And What About Social Media? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

CHUKRI AKHRAS

Cross-Culture Diffusion Issues Under the Concept of The

Belt and Road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
CHEN-JIA WANG

Study on the Development Evaluation of Circular Economy

in Tianjin City Based on AHP Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
JUN-LING ZHANG

Research on Cost Model of Environmental Cooperation

Protection for Transboundary Air Pollution . . . . . . . . . . . . . . . . . . . . . . . . 91
CHANG-MIN LI and HONG-XIA WANG

E-business Utilization in Supply Chain Management of

UK Textile Manufacturing Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
FANG SHAO and IAIN STALKER

Research on the Supply Chain Contract of Considering PDL

and the Price Factor under the Quality Guarantee
of the E-commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
XUN YAO, HUI LIU and WEI-E PAN

The Influence of Consumer-Based E-business Brand Equity

on Websites. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
JING MA

AHP Analysis the Factors of Traditional Business Transformation

and Upgrading Based on Internet Thinking . . . . . . . . . . . . . . . . . . . . . . . 114
LI-HUA WANG
The Research of SME Financial Crisis Warning Model Based
on Neural Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
MAO-RAN ZHU, WEI FANG and YUAN SONG

Improving the Public Investment in Science and Technology

Research and Living Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
JING-YU HUANG, XIANG-HUI MENG and NAN WU

Empirical Analyzing for a Financial Centre on the Economic

Flows Network Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
QUAN-YONG BAI

The Analysis on Influence Factors of Online Supply Chain

Finance Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
CHAO LI

Research on the Price of Stock Index Futures with ARIMA

Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
SHAN-SHAN CONG, JIA-PENG LIU, JIE LIU and XIAO-LI ZHAO

Performance-Based-Ratemaking and Its application in

Chinas Power Transmission-Distribution Price Regulation . . . . . . . . . . 157
QING HUANG

Dynamic Pricing of Airline Tickets with Strategic and Myopic

Passengers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
MEI-RONG TAN and HAO LI

Legal Problems and Solutions of Village Environment Protection

Infrastructure Investment and Financing in China . . . . . . . . . . . . . . . . . 169
YAN ZHANG and XIN ZHANG

Research on Risk Assessment of International Factoring

Financing Business: Illustrated by the Example of
Bank A Zhejiang Branch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
JUN ZHUO, FENG-YUAN ZHOU and YA-TING ZHOU

Chinese Shadow BankingCredit Creation Mechanism and

Credit Expansion of Bank Financial Products . . . . . . . . . . . . . . . . . . . . . 180
CAI-XIA ZHANG

The Empirical Study on the Correlation Among International

Stock Markets Based on the Multi-scale Analysis . . . . . . . . . . . . . . . . . . . 188
WEN-RONG PAN, JIA-FU ZHAO and SHU-MIN PAN

An Empirical Study About the Impact of Tax on Foreign

Direct Investment Inflow to Guangdong Province . . . . . . . . . . . . . . . . . . 195
LI-CAI LV and JA-WEI CHEN

The Study of Incentive Coefficient of Owner to Design

Contractor Based on Prospect Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
GUI-QIN ZHANG, MU-YANG LI, TAO YI and YU-HONG FAN
Research on Sino-US Trade Friction Problem. . . . . . . . . . . . . . . . . . . . . . 207
ZHEN LI

Application and Research of Electronic Commerce in the

Centralized Procurement of Large State-Owned Enterprises . . . . . . . . . 212
LANG LUO, YAO LIU and TAO HU

Analysis for Cost Leadership Strategy and Core Competitiveness

Points of IKEA CO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
JIN-YUAN YUAN, MIAO WANG, XIAO-MING YUAN

Research on the Efficiency Mechanism of P2P in China Based

on Financial Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
YUN ZHOU

Study of Promoting Economic and Trade Cooperation in the

Development of Heilongjiang Province to Russian Far East . . . . . . . . . . 231
YI-JUN XIANG and JIAN-XUN LIU

Development Relationship Research between Retail Industry

and Regional Economy Based On Coupling Coordination
Degree Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
LI-NA ZHANG

Research on Catastrophe Risk Financing Mode for Tailings

Pond Dam Break . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
ZI-NAN HU, GUO-QING LI and NAI-LIAN HU

The Loess Plateau Ecosystem Services Value AssessmentIn

Qingyang City as an Example. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
LU XUE and HUI-CHUN SHI

The Rural Tourism Resources Evaluation and Product

Development ResearchA Case Study of Lanzhou . . . . . . . . . . . . . . . . . 261
LU-CANG WANG, JING WANG and CUI-XIA YAN

The Research on the State-owned Enterprise Reform . . . . . . . . . . . . . . . 267

BAO-QIAN DUAN, RUI-MIN DING and LEI ZHAO

The Research on Spatial-temporal Characteristics of Tourist

Flow in Lanzhou Based on Sina Microblog Big Data . . . . . . . . . . . . . . . . 271
LU-CANG WANG, CUI-XIA YAN and JING-WANG

Public Deficits, Government Spending, and Economic Growth:

The Zhuhai Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
CHI-CHUAN LEE

Trust and Financial Reports Quality-Based on the Empirical

Data of Most Admired Company in China . . . . . . . . . . . . . . . . . . . . . . . . 282
SUN-LEI YANG, BO-YU QIN, XIONG-FEI LIU and ZI-XUAN ZHOU
Study on Investment and Finance Mechanism of New
Urbanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
JIN-LING DONG and JIE SUN

Asymmetric Adjustments of U.S. Interest Rates . . . . . . . . . . . . . . . . . . . . 292

SAI-NAN HUANG and SONG-LIN ZENG

Literature Review and Policy Analysis of Carbon Tax . . . . . . . . . . . . . . . 298

JI E Q I

A Study of Purchase Decision and Its Affecting Factors for

Mobile Shopping Among Smartphone Users . . . . . . . . . . . . . . . . . . . . . . 307
AI-MIN ZHANG and WEN-YUE LIU

SESSION 2: MANAGEMENT SCIENCE

Research on the Development Strategies of Tourism
Internationalization in Wuhan City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
JIANG-MIN LI and WEI LI

Parental Health, Education Investment and Human Capital

Accumulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
CHEN LU

The Fresh Products O2O Mode of New Development Base

on the Internet of Things Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
YANG LIU and LI-YAN WANG

Research on O2O Business Model and Strategy of Urban

Distribution in Mobile Internet Environment . . . . . . . . . . . . . . . . . . . . . . 331
JUN TAN

The Utilization and Protection Research of the Island Resources

in China: A Case Study of Zhejiang Province . . . . . . . . . . . . . . . . . . . . . . 336
SHI-BIAO WANG, CAI-CAI YUAN and GONG-MING SHEN

Research on Tourism English Translation Based on Cultural

Difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
SHI-RONG CUI

Impact of Working Hours on the Health, Social Life &

Performance on Centralized Operation Division
(COD) Employees of Dubai Islamic Bank Pakistan . . . . . . . . . . . . . . . . . 347
FARHANA SHOUKAT, SHEERAZ ALI and ASIF KAMRAN

Hybrid Teaching Practice to Enhance Students Engagement:

Case of Ibt, Karachi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
ADNAN ASGHAR ALI, ASIF KAMRAN and HAMMAD TAHIR

Role of Ibt Karachi CSR Society to Develop Social Values

in Students: Heat Wave as Death Tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
ADNAN ASGHAR ALI, ASIF KAMRAN and FAWWAD BUT
A Study on the Collaborative Mechanism Based on Cost
Control Theory in Coastal Harbor Logistics . . . . . . . . . . . . . . . . . . . . . . . 365
YOU-MING ZHU

Taiwan C to C Analysis: A Study on Chinese Website

Phenomenon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
SZU-YUAN SUN, SHU-CHEN CHANG, LI-SHAN CHEN
and GOW-MING DONG

Implementation of an SDN-based Security Defense Mechanism

Against DDoS Attacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
HSIAO-CHUNG LIN and PING WANG

On the Evaluation of the Enterprises Leadership Effectiveness . . . . . . . 384

QING-WU SUN

Research of Automobile Industrial Development Policy under

the Background of Internet + Automobile Strategy . . . . . . . . . . . . . . . 390
ZHAO-WEN DENG, BAO-HUA WANG and XIAO-BING CHEN

Potential Management Rules: Creating, Changing and Its

Mutual Influence on Enterprise Employees Behavior . . . . . . . . . . . . . . . 395
BANG-JUN WANG and WEN YAO

The Development of Common Duct in Taiwan and Its

Enlightenment to China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
QI-MING CUI, HONG ZHANG and XIANG WEI

The Research of Entrepreneurship Education Evaluation

System of Private Colleges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407
QIU-LIAN ZHU, XIANG-WEI ZANG, HAI-YAN WANG,
JI-XIN LIU, RUI-YING SHAO, XI-YUAN ZHAO
and CHENG-LONG ZHANG

Analysis on Energy Saving of Large Scale Public Building

Economy Taking Kaifeng City as an Example. . . . . . . . . . . . . . . . . . . . . . 411
BO LIANG

Research on the Relationship between Competency and Job

Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
YONG WANG, JUN MA and HUI REN

Cultivation of Students Professional Quality in Application

Oriented Universities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
XIANG-WEI ZANG, QIU-LIAN ZHU, YUAN-YUAN XU,
HUA LIU and BAO-QIANG HU

Research on Current Situation and Influencing Factors of

Work-Family Conflict of Employees from One-Child Family . . . . . . . . . 424
TING WANG and LU-LU YOU
The Developed Country City Public Transportation Policy
Evolution History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
BO LIANG

Comparison of Organizations Human Resource Management

Mode in Different Culture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434
MENG GUO

Distribution Precision System in the Last One Mile of Steel

Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441
YONG-CHUAN WANG and LIN YAO

A Study on the Influencing Factors of Cosmetic Beauty

Repurchasing Intention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
SZU-YUAN SUN, SHU-CHEN CHANG and KENG-LIANG HUANG

The Official Promotion Incentive: A New Re-estimation and

Re-examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
CHEN FENG, MENG QIU, RONG KANG, DONG WANG
and BEI-BEI SHI

The Risk Management of Superior Award in International

Investment Arbitration in the Method of Categorization . . . . . . . . . . . . . 459
XIA DING

The Analysis of Vertical Integration Internal Motivation Factors

About Coal Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464
XIAO-CHEN DU

Factorial Analysis on the Implementation of Land Retirement

Strategy in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470
YUN-FEI CHEN and SU-CHUN WU

Study on Establishment of Eco-industrial Chain Based on

Eco-efficiency: A Case Study of Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . 475
YAN JIN and RONG FU

Intercity Railway Passenger Transport Service Quality

Evaluation Method Based on Passenger Satisfaction . . . . . . . . . . . . . . . . 481
YING-GUI ZHANG, QING-YI LIU, DING-YOU LEI, XIN-PING XU
and JING-ZE ZHAO

SESSION 3: INNOVATION AND ENTREPRENEURSHIP

To Set up the Basic Platform of Enterprises Independent
Innovation Based on Lean-Flexible Thinking . . . . . . . . . . . . . . . . . . . . . . 487
TIAN-MING XIAO

The Design and Realization of Management System for College

Students Innovation and Entrepreneurship Training Projects . . . . . . . . 491
LI-HUA LI and SU-HUA LUO
Research on the Innovation Evaluation Indexes for
Innovation-Oriented City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496
HAI-JUN WANG and SI-YI GONG
South Africa as the Case Study on the Relationship between
Entrepreneurship and Economic Development . . . . . . . . . . . . . . . . . . . . . 502
YUE GUO and WANANGWA NGANJO
Study of Factors of Low-carbon Operation (LCO) of
Manufacturing Enterprises and Their Implementation Paths . . . . . . . . . 509
DAN-DAN WANG
Externality of Internet Companies Scientific and Technological
Innovation in the Complete Information Static Game . . . . . . . . . . . . . . . 518
WEN XIN, YUN-FAN WU and ZHI-LUO GUO
Improvement and Innovation of the Current Financial Report
Model under the Fair Value Measurement . . . . . . . . . . . . . . . . . . . . . . . . 523
YONG-CHEN LI and XIAO-HUI CHANG
Author Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
 PrefaceICEME 2016

ICEME 2016 is held in Wuhan, China from June 1819, 2016. Aiming at
providing an excellent international academic forum for all the researchers and
practitioners, the conference enjoys a wide spread participation among all over the
universities and research institutes. Any paper and topic concentrates on related fields
of economics, management science and management engineering is broadly
welcomed. Besides that we also look forward to making the conference perfect
circumstances to share resources, exchange opinions and inspire studying.
ICEME 2016 proceeding tends to collect the most up-to-date, comprehensive, and
worldwide state-of-art knowledge on economics, management science and
management engineering. All the accepted papers have been submitted to strict
peer-review by 24 expert referees, and selected based on originality, significance and
clarity for the purpose of the conference. The conference program is extremely rich,
profound and featuring high-impact presentations of selected papers and additional
late-breaking contributions. We sincerely hope that the conference would not only
show the participants a broad overview of the latest research results on related fields,
but also provide them with a significant platform for academic connection and
exchange.
The Technical Program Committee members have been working very hard to meet
the deadline of review. The final conference program consists of 41 papers divided
into 3 sessions. The proceedings would be published in a volume by DEStech
Publications.
We would like to express our sincere gratitude to all the TPC members and
organizers for their hard work, precious time and endeavor preparing for the
conference. Our deepest thanks also go to the volunteers and staffs for their
long-hours work and generosity theyve given to the conference. The last but not least,
we would like to thank each and every of the authors, speakers and participants for
their great contributions to the success of ICEME 2016.

ICEME 2016 Organizing Committee

 PrefaceEBM 2016

2016 International Conference on Economics and Business Management (EBM 2016) has
been successfully held in Guangzhou, China, on June 24th-26th. The conference provides the
opportunity to view international research, network, and meet colleagues from around the
world, and discuss the new methods in research, the practical challenges encountered and the
solutions that will be adopted.
The EBM 2016 received over more than 150 submissions. The papers included in this
volume were selected by a rigorous process of double peer review. First, all papers accepted
for presentation were selected by a peer review system whereby the selected papers were
revised based on reviewers comments. Second, following the conference, an additional
review of selected papers was conducted, resulting in further revisions that finally led to the
papers included in this volume. The program of EBM 2016 consisted of keynote presentation,
invited sessions and technical workshops. We hope your experience is a fruitful and long
lasting one. With your support and participation, the conferences will continue their success
for a long time.
To conclude, we would like to express our sincere and profound gratitude to all members of
conference committee and to everyone who has made these events a success. We wish you all
a productive gathering and let us together look forward to a smooth and momentous
conference.

Organizing Committee of EBM 2016

Guangzhou, China
 CommitteesICEME 2016

Program Chair
Prof. Chiguo Tai, Dalian University of Technology, China.
Co-Chair
Prof. Tao Gong, College of Information S. & T., Donghua University, China
Prof. Phan Quoc Khanh, Federation University, Australia
Technical Program Committee
Prof. Tao Gong, College of Information S. & T., Donghua University, China
Prof. Chiguo Tai, Dalian University of Technology, China.
Prof. Phan Quoc Khanh, Federation University, Australia
Prof. Ning Zhang, Beijing Union University, China
Dr. Ming Sun, Foshan University, China
Dr. Vasily Karasev, IPME RAS, Russia
Prof. Yucheng Liu, Chongqing University of Science & Technology, China
Dr. Chiwai Kan, The Hong Kong Polytechnic University, HK, China
Prof. Peng Li, Guangxi University, China
Prof. Zhengxiang Zhou, Changsha University of Science & Technology, China
Prof. Low Sui Pheng, National University of Singapore, Singapore
Prof. Chunxia Yang, Nanjing University of Information Science Technology, China
Dr. Xiongfeng Pan, Dalian University of Technology, China
Dr. Gang Xie, Chinese Academy of Sciences, China
Dr. Bongani Ngwenya, Solusi University, Zimbabwe
Dr. Frank Schulz, SAP Research, Karlsruhe, Germany
Prof. Zhihong Qian, Jilin University, China
Prof. Outbib, Aix-Marseille, France
Dr. Chunguang Bing, Chinese Academy of Social Sciences, CASS, China
Prof. Changying Shi, Heilongjiang University, China
Prof. Zbigniew Banaszak, Warsaw University of Technology, Poland
Prof. Wei Lv, Zhengzhou Institute of Aeronautics, China
Dr. Javad Soroor, Shiraz University of Technology, Iran
Dr. Hamid Yaghoubi, The Director of Iran Maglev Technology (IMT), Tehran, Iran
Prof. Ravinder Kumar, Maharishi Markandeshwar University, India
Dr.Bhoopal Rao Gangadari, EEE Department, Indian Institute of Technology
Guwahati, India.
Dr. Pankaj Kalita, Indian Institute of Technology Guwahati, India
Dr. Y R M Rao, Anna University, India.
Dr. Jayan V, CDAC Trivandrum, India
Dr. J. R. Isaac Balasingh, Dr. G. U. Pope College of Engineering, India
Prof. Huey-Ming Lee, Chinese Culture University, Taiwan, China
Prof. Lily Lin, China University of Technology, Taiwan, China
Dr. Muhammad Naufal Bin Mansor, Universiti Malaysia Perlis (UniMAP), Malaysia
Dr. Ming Sun, Foshan University, China
Dr. Dawei Wang, University of Chinese Academy of Sciences, China
Dr. Imran Memon, Zhejiang university China
 CommitteesEBM 2016

General Chair
Prof. Chunping Zhong, Chinese Academy of Social Sciences, China
Co-Chair
Prof. Hsiang-Chuan Liu, National Taichung University of Education, Taiwan
Technical Program Committee
Dr. Caroline Akhras, Associate Professor, Notre Dame University, Lebanon
Prof. Cafer Topaloglu, Professor, Mugla Sitki Kocman University, Turkey
Prof. Chunping Zhong, Professor, Chinese Academy of Social Sciences, China
Dr. Lipo Wang, Doctor, Nanyang Technological University, Singapore
Dr. Sim Kwan Yong, Doctor, Swinburne University of Technology Sarawak Campus,
Malaysia
Prof. Wei-Chen Wu, Professor, Hsin Sheng College of Medical Care and Management,
Taiwan
Prof. Ming-Yi Shih, Professor, National Changhua University of Education, Taiwan
Prof. Azilah Kasim, Professor, Universiti Utara Malaysia, Malaysia
Prof. Chien-Chiang Lee, Professor, National Sun Yat-sen University, Taiwan
Elsie Chan, Senior Lecturer, Australian Catholic University, Australia
Prof. Ying-Jiun Hsieh, Professor, National Chung Hsing University, Taiwan
Xin Janet Ge, Senior Lecturer, University of Technology Sydney, Australia
Prof. Li Wen, Professor, South China University of Technology, China
Prof. Yin-Che Chen, Professor, National Hsinchu University of Education, Taiwan
Prof. Tang Sai Hon, Professor, Universiti Putra Malaysia, Malaysia
Dr. Hazbo Skoko, Doctor, Charles Sturt University, Australia
Dr. Hong Jer Lang, Doctor, Monash University, Malaysia
Prof. Mei-Hsin Wang, Professor, Yunlin University of Science & Technology, Taiwan
Prof. Libao An, Professor, North China University of Science and Technology, China
Prof. Hui Yang, Professor, Beijing University of Posts and Telecommunications,
China
Prof. HongAn Chen, Professor, East China University of Science and Technology,
China
Dr. Mohd Zakhiri Md Nor, Assistant Professor, University Utara Malaysia, Malaysia
Prof. I-Chun Tsai, Professor, National University of Kaohsiung, Taiwan
Dr. Yung Yau, Doctor, City University of Hong Kong, Hong Kong
Prof. Zhen Liu, Professor, Chongqing University of Technology, China
Prof. Ray Wang, Professor, Hungkuang University, Taiwan
Prof. Yumei Luo, Professor, Yunnan University, China
Prof. Hsiang-Chuan Liu, Professor, National Taichung University of Education,
Taiwan
Prof. Renfan Liu, Professor, Hangzhou Dianzi University, China
Prof. Hsin-Ke Lu, Professor, Chinese Culture University, China
Mohd Noah A. Rahman, Senior Lecturer, Universiti Teknologi Brunei, Negara Brunei
Darussalam
Prof. Haifeng Li, Professor, Dalian Jiaotong University, China
Prof. Jiwen Jiao, Professor, Shandong University, China
Prof. Hongan Chen, Professor, East China University of Science and Technology,
China
Prof. Wei Wei, Professor, Xi'an University of Technology, China
Prof. Xun Yao, Professor, Southwest University for Nationalities, China
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Climate Change and Economic Policies in China

Rong KANG*, Bao-ping REN
School of Economics and Management, Northwest University, Xian 710127, China
*Corresponding author

Keywords: Climate change, Economic policy, China.

Abstract. Climate change is the great challenge to all the people in the world. Data shows that
consistent with the warming climate globally, the climate change in China in 20th century has
shown clear warming characteristics. The government of central and local levels in China has
proposed a series of measures. A comprehensive system fighting climate change including
controlling greenhouse gas emission, adapting the impacts of climate change, initiating the
demonstrating projects, bettering the regional climate policies, etc. International comparison are
done in terms of the economic measures fighting climate changes, such as pricing of energy,
cancelling the subsidy, and some economic tools of certain countries etc. Based on Chinas practice,
certain suggestions are proposed on further development direction.

Introduction
Climate change is the great challenge to all the people in the world. According to IPCC, climate
change is the significant change of climate in the statistical terms over a long period, say, over 10
years or longer. Currently, the climate change is characterized by warming in the globe. Data shows
that consistent with the warming climate globally, the climate change in China in 20th century has
shown clear warming characteristics. The warming in China is higher than the average index in the
world. Upon this background, the extreme weather and climate incidents happen with higher
frequency. In order to realize the vision of Blue sky, green mountains, and clear water are always
with us, China has proposed a series of effective measures. The efforts have been coordinated with
the nation-wide direction, plan, arrangement and efficient cooperation. The role of nation has shown
great advantage in the process.
This paper starts from the description of the climate change in China, which is the base of
showing the importance of fighting climate change. Then the works of Chinese government are
listed, focusing on economic measures, to show the vital role of the government regulation in
reaching the 2 limits, which represents the integrative value of the society.

The Climate Change in China

The Global Warming
According to the five evaluation reports of IPCC (Intergovernmental Panel on Climate Change,
IPCC) in 1990, 1995, 2001, 2007 and 2014, climate change is the great change or the change lasting
for a long period (typically 10 years or more) in terms of average statistical sense.
The climate change is the result driven by both natural forces and the economic activities of
human society. The influence of human beings, especially since the industrial revolution, the
direction and speed of the impact of human activities on the climate change have been significant. It
is shown by the global warming. According to the fourth evaluation report, within the recent 100
years, the average global temperature has raised by 0.74, and it has showing speeding trend.
In the future, the global warming will continue, extreme climate events will happen more often
and more serious. As shown in Figure 1, from 1850 up to now, the globally average combined land
and ocean surface temperature have raised anomaly; the sea level has been rising; greenhouse gas
concentration has increased; cumulative CO2 has reached the highest level within the 800,000
years, which is mainly resulted from the fossil fuels, cement and land usage change.

1
 According to the Chairman of IPCC, it is possible to keep the temperature increase within 2
with controllable cost, but the global emission of greenhouse gas should decrease by 40%-70%, it
should reach zero emission in 2100.
The Climate Change in China
According the research on climate change in China, consisting with the global warming trend, in the
20th century, the climate change in China has also shown significant warming, and also it is more
than the average temperature increase.
Since the middle of the 20th century, the precipitation has shown slightly increasing trend. The
data of the Tmax and Tmin of climate stations in eastern part of China from 1905-2007 shows that,
the average temperature increase in the period is 0.96-100a. If the IPCC research period,
1906-2005 is also followed, it shows the climate change speed is in 0.34-1.20/100a.
According the average observed day temperature data, the warming increasing ratio between
1880 and 2007 is 0.69/100a. Although the data and the analysis methods are different, all of the
researches have proved that within recent 100 years, the temperature has increased by 0.5-0.8,
which is higher than that of the global average.
In the 20th century, the region owns the highest temperature increase is the northern part of
China, especially in the area east of Inner Mongolia and the northeast part of China, the top
warming speed amounted to 0.8/10 years. The significant warming in the whole country started
from the end of 1980s, the climate belt moves toward north. This is one of the most obvious signal
of warming.
After the global warming, more and more extreme climate and weather events happen more often
and more seriously. It includes rising of extreme lowest temperature, decreasing of day temperature
change, increasing and stronger extreme precipitation. The frequency, extension and seriousness of
climate disasters have been increased, and the damage of climate disasters to the society has grown
further.
According to the Plan for China to deal with climate change (2014-2020), China is a country
easy to be negatively influenced by climate change. In recent 100 years, the precipitation fluctuates
among regions, which has increased in northwest part while decreased in northeast and northern
part. The erosion of seashore and salt wave disaster has been serious. Since 1950s, the glacier has
shrunk by over 10%, which has speeded since 1990s, the extreme climate events happen more
often, the water resource has shown shortage while the seasonal draught becomes more severe in
the south, flood disasters happen together with strong typhoon. The agriculture has faced serious
damages and the engineering projects and operations have to face risks often.
The research done by Prof. Kezhen ZHU in 1973 has been an influential paper in the field of
climate change, based on over 5000-year-collection of related climate and physical climate
researches, he supported his idea that the fluctuation of climate change in ancient China is
periodical.
The Greenhouse Gas Emission
In terms of the climate change in China, it must be pointed out that the fast economic growth has
been accompanied by serious problems which have brought significant impacts on climate change,
or the pollution is currently a serious problem.
According to the data of UNEP, the World Bank, IEA, PBL, GCP of Tyndall, the greenhouse gas
emission in China has become a very serious problem. For example, the regional climate problems
around PM 2.5 have caused increasing impacts on peoples health, social harmony and economic
growth.
For example, according to Global Carbon Project Report (2014), the four economies with the
largest CO2 emission are China, US, EU and India. In the global emission of 2012, China took
71%. In terms of emission per capita, China has reached 1.9tC (6.9616 tCO2). If the historical
accumulative emission is concerned, US took 26%, EU 23% and China 11%.

2
The Measures of China in Fighting Climate Change
The Emphasis of Top Leaders and Central Government
The process of fighting climate change and transforming economy toward low-carbon model is a
lasting one, so the emphasis of the top leaders is very important.
The central government in China has raised fighting climate change to a national level strategic
aim. In the early of 2015, the political bureau meeting of the central government has proposed one
new aim based on industrialization, informationization, agricultural modernization, and
urbanization that is greenization. It is the first time that the aim of constructing an ecologically
friend society has been proposed formally.
Another important event is the US-China joint announcement on climate change issued on
November 12, 2014. The top leaders from US and China announced to combat global climate
change jointly, they reaffirmed the importance of strengthening bilateral cooperation on climate
change and will work together, and with other countries, to adopt a protocol, another legal
instrument or an agreed outcome with legal force under the Convention applicable to all Parties at
the United Nations Climate Conference in Paris in 2015.
In APEC conference 2014, the President Xi Jinping has proposed the vision of constructing
ecologically friend society, consisting of blue sky, green mountains and clear water, which has
made ecological environment the core of China Dream.
Premier Li Keqiang has also mentioned in the World Economic Forum in 2014 that, Chinas
economy is in the developing process, but the growth of economy is facing serious environmental
conflicts, so the protection of the environment should be emphasized.

The Overall Structure of Policies on Fighting Climate Change

In order to combat the climate change and speed the transformation of industrial structure and
energy structure, a series of active policies and actions have been carried out.
The national leading group to fight climate change and certain administrative institutes have been
formed; documents such as The national Plan to combat climate change of China, The working
plan of controlling GHG emission during the 12th five-year project and The national strategy of
adapting climate change have been composed and executed. In proposing the energy saving and
carbon decreasing, demonstration projects of low carbon have been put forward. In terms of the
detailed aim of combating the climate change, China intends to achieve the peaking of CO2
emissions around 2030 and to make best efforts to peak early and intends to increase the share of
non-fossil fuels in primary energy consumption to around 20% by 2030.
The overall design of national policies can be seen from Table 1, which is based on The national
Plan to combat climate change of China (2014-2020).

3
 Table 1. The general and detailed tasks of China to combat climate change.
General task Detailed task
To adjust the industrial structure; better the energy structure; promote the energy
To control the GHG saving; increase the carbon sink in forest and ecological system; control the emission
1
emission in industry, urban construction, transportation, business and waste disposal dealing;
and promote low-carbon style life.
To improve the adaptation capacity of urban infrastructure, agriculture and forestry,
To adapt the impact sea and seashore, and human health fields; improve the water resource management
2
of climate change and facility construction; improve the adaptation of ecologically weak region; and
promote the construction of disaster prevention and mitigation.
To execute pilot To promote the provincial and city pilot demonstration projects, initiate the
3 demonstration low-carbon park, business district and community, execute the carbon decreasing and
project climate change adaptation demonstration projects.
To better regional
Policies of urban area, rural area and key ecological function area to combat climate
4 policies to combat
change.
climate change
To establish
To develop related law, regulation and standards, establish carbon trade system and
incentive and
5 CO2 emission authentication system, better the finance, investment, tax and price
constraint
policies.
mechanism
To strengthen the
To develop basic research, promote research and development, and speed the spread
6 support of science
and application of technologies.
and technology
To strengthen the To develop statistic system of measuring GHG, cultivate talents, strengthen the
7
capacity training and public opinion leading.
To deepen the
To promote the establishment fair and reasonable global climate system, strengthen
international
8 the cooperation with international organizations and developed countries, carry out
exchange and
cooperation among developing countries actively.
cooperation
The organization of
9 To strengthen the overall coordination and establish the evaluation mechanism.
policy execution
Source: The national Plan to combat climate change of China (2014-2020), CNRC 2014.9

The Recent Economic Policies of China in Combating Climate Change

Compared with the past, a lot of economic policies have been proposed in recent years to combat
climate change in China. The following are the examples from many fields.
The new Law of Environment Protection is formally executed since January 1, 2015. This is the
first revision of this basic law in the environment domain since 25 years ago. It is believed as a law
which can combat seriously pollution. It, together with another draft, the Revision Draft of the
Prevention and Control of Atmospheric Pollution, will provide sound support to Chinese government
to combat climate change.
The work related to combating climate change has moved forward very fast since 2007 with an
outstanding speed. Externally, Chinese government takes part in the global negotiation actively;
internally, the top-level design and front line pilot demonstration are carried out. So the work is
developed jointly in terms of statistics, strategic plan, and regional execution. The international
emission trade system is studied, and 7 pilots have been established, which already provide some
experience, forming the base of unified carbon market.
Special funds have been collected to fight atmospheric pollution. The central government provides
15 billion RMB to help Beijing, Tianjin and Hebei Province to decrease the usage of coal. In 2008,
the Beijing Olympic Games witness the multi-region joint combating model upon atmospheric
protection. Now the joint project among the above three provinces has been normal, which clearly
demands the PM2.5 decrease by 25% in 2017 than 2012. This has driven the three provinces to start a
series of abnormal policies to protect the environment. According the government statistic report, the
PM2.5 density decreased by 6.3% in Bejing during the first 9 months of 2014, 19.1% in Tianjin, and
12% in Hebei. The funds mainly support two kinds of energy structure change project, one is natural

4
gas project; the other is decreasing coal project. In 2012, Beijing itself used 23 million tons of coal,
which is demanded to decrease to 10 million in 2017.
The National Bureau of Energy is to initiate 7 important measures, to promote the revolution in the
production and consumption of energy, to promote the transformation and update of energy, to
establish safe, stable, diversified and clean modern energy system, to further promote the upgrade and
reform of emission from coal, vigorously promote the clean and efficient application of coal, to
establish pilot demonstration projects of coal gas.
Clean energy is actively developed in China. According to Bluebook of Industry: the Report of
Industrial Competitiveness in China (2014) No. 4, In terms of the market share of new energy
industry globally, China, Germany and South Korea rank the top three. The countries who have the
competitiveness in new energy are China, Germany, US, Denmark and South Korea. The competitive
advantage of China and South Korea is the Photovoltaic industry, whose tradability is higher than
wind power.
The carbon trade market is entering pilot demonstration phase. In National Response Plan to
Climate Change (2014-2020), the carbon trade system is to be set up. Seven pilot exchanges have
been initiated in 7 provinces, in order to offer insights and direction for the future common national
market. Up to now, from their operation of about one year, generally the pilot project is smooth, the
turnover amounts to 500 million RMB, the price ranges from 20 to 70 RMB.
Tax reform. In November and December of 2014, two tax reforms have been undertaken in China.
The first is to raise the consumption tax of refined oil, which makes the turnover tax of gasoline and
diesel raise from 32% and 29% to 34% and 31%, respectively. The other is to raise the coal resource
tax in the whole country, ad valorem is followed, which will contribute to the reasonable exploration
and application of resource, hence benefit the energy saving and CO2 emission reduction.
PM2.5 is monitored in the whole country according to new standard. Since January 1, 2015, in 338
cities 1436 monitor posts are established, which will monitor the air quality by new standards, and the
related information is publicized in the air quality information platform in China Environment
Monitor Station.
Social organizations are encouraged to sue against pollution behavior. The Supreme Peoples
Court has issue the explanation on January 6, 2015, that social organizations are granted more power
to sue those people or organization who are again the Law of Environment Protection, which is
commonly believed as a sound new measure to combat pollution in big cities such as Beijing.
CO2 emission of key industries is monitored and the low-carbon product certification system has
started. Since October 3, 2014, the General Administration of Quality Inspection and the Commission
of Certification and Inspection launched the research and demonstration of CO2 emission of key
industries and the low-carbon product certification.
National electricity reform is speeding, the national power grid will become the service provider of
power transmission and distribution. In January 2015, Shenzhen City started the pilot reform program
of electricity transmission and distribution price, which will lead the national market reform of power
market. It is believed that China will gradually promote the reform of electricity market, grant the
final consumers more alternative rights. Furthermore, the price change signal of primary energy will
pass to the sale price, so the price can represent more reasonably the demand of the market, resource
scarcity and the cost of environment damage.
The insights of international experience to China
Historically speaking, the environmental problems facing China has made our country launch a
series of policies to combat climate change. In the world, many countries and international
organizations have a lot of experience in this field, which can insight China in the decision making
in applying economic tools to response climate change.
The Conflict between Economic Growth and Environmental Protection Should be Highly
Emphasized. According to Jeffrey Sachs, the Director of the UN Sustainable Development Solutions
Network, a global framework for achieving the 2-degree C limit on temperature rise. But in order to
achieve this aim, which means by 2050, current 35 million CO2 emission should decrease to 10-15

5
million, but the economic growth in current speed makes it very hard to realize. In China, the
economic growth has realized very high speed, keeping the growth of economy must be balanced
with environment concern, hence China should not only pay high attention to the growth of economy,
but also to the environment cost.
The Possible Green Finance to Match the Aim of Response to Climate Change in a Large
Scale Should be Researched and Carried out. A lot of problems face the countries in combating
the climate change, finance support is one of them. Only enough fund can support countries,
including China to successfully fight the climate change. The IMFs research can offer some
insights. In its latest book Getting prices right, IMF proposed that given the powerful incentive
effect that prices have on economic behavior, the application of basic tax principles is critical.
Getting prices right means that taxes on fossil fuels should be set at a level such that energy prices
reflect their associated environmental side effects. For example, just like Table 2 shows, if tax
reform are carried out, China will have 65.9% reduction in pollution deaths from coal tax, and
32.8% reduction in nationwide energy-related CO2 emissions. Hence it is valuable to research
deeply, how to initiate such reforms in China.
The Policies should be Scientifically Evaluated. According to Prof. Bjrn Lomborg, the
director of the Copenhagen Consensus Center and a former director of the Environmental
Assessment Institute in Copenhagen, to research and develop cheap green energy is vital for the
future. He had drawn a conclusion that governments have invested billions of dollars in inefficient,
feel-good policies. For example, German taxpayers have poured $130-billion into subsidizing solar
panels, but ultimately by the end of the century, this will postpone global warming by a trivial 37
hours. But there are far better ways to improve environmental prospects for humanity and our
planet. A lot of policies have been proposed and launched, but during this process, careful
evaluation should follow.
To sum up, like many countries in the world, China is facing great challenges in response to the
climate change. As the biggest CO2 emission country, China has realized the importance of
environment affairs. The top leaders have expressed the high concern to the issue, the central
government has also design a comprehensive framework to combat the climate change; a series of
policies and reforms have been started in recent years. But compared with the reality demand of
economic growth, the policies should be scientifically evaluated and carried out, some international
experiences provide valuable insights.

References
[1] Intergovernmental Panel on Climate Change, [2013], the Fifth Analysis Report
[2] International Energy Agency, [2013]: Redrawing the Energy-Climate Map
[3] International Energy Agency, [2013]: Four energy policies can keep the 2 climate
[4] United Nations Environment Programme, [2013]: The Emissions Gap Report 2013
[5] U.S. Energy Information Administration, [2013]: International Energy Outlook 2013
[6] World Resources Institute, [2014]: Creating a sustainable food future
[7] IMF, [2014], Getting Energy Prices Right: From Principle to Practice

6
[8] Full Global Carbon Budget [2014], C. Le Qur, R. Moriarty, R. M. Andrew, G. P. Peters, P.
Ciais, P. Friedlingstein, S. D. Jones, S. Sitch, P. Tans, A. Arneth, T. A. Boden, L. Bopp, Y. Bozec,
J. G. Canadell, F. Chevallier, C. E. Cosca, I. Harris, M. Hoppema, R. A. Houghton, J. I. House, A.
K. Jain, T. Johannessen, E. Kato, R. F. Keeling, V. Kitidis, K. Klein Goldewijk, C. Koven, C. S.
Landa, P. Landschtzer, A. Lenton, I. D. Lima, G. H. Marland, J. T. Mathis, N. Metzl, Y. Nojiri, A.
Olsen, T. Ono, W. Peters, B. Pfeil, B. Poulter, M. R. Raupach, P. Regnier, C. Rdenbeck, S. Saito,
J. E. Sailsbury, U. Schuster, J. Schwinger, R. Sfrian, J. Segschneider, T. Steinhoff, B. D. Stocker,
A. J. Sutton, T. Takahashi, B. Tilbrook, G. R. van der Werf, N. Viovy, Y.-P. Wang, R.
Wanninkhof, A. Wiltshire, and N. Zeng 2014. Global Carbon Budget 2014. Earth System Science
Data Discussions, doi:10.5194/essdd-7-521-2014.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Inconsistency of Qualitative and Quantitative Fluctuations in

Economic Growth of China and Interpretations
Bao-ping REN*, Rong KANG
1
School of Economics and Management, Northwest University, Xian 710127, China
*Corresponding author

Keywords: Economic growth quantity, Economic growth quality.

Abstract. The economic growth in China shows inconsistent fluctuations in terms of the quantity
and quality, featured by high speed but poor quality. This inconsistency can be identified in both
gross national and provincial terms. The big quality gap between the input and output in economic
growth, the high cost of resource and environment, the instable economic growth itself, and the
problems in income and welfare distribution contribute to the inconsistency. To match the quality to
the quantity of economic growth, economic surplus should add the gross welfare of the whole
society, through routes such as promoting the change of economic development modes, fastening
the upgrade of the industrial structure, developing innovative economy, strengthening asset
management of resources and promoting the institution innovation.

Introduction
During the 30 years after the opening and reform policy was carried out, the economy in China has
achieved outstanding results through continuous effort. According to the statistics of the World
Bank, the economic growth rate in China in 1980s has amounted to 10.1%, and 10.7% in 1990s.
However, the economic growth in China then showed inconsistent fluctuations in terms of the
quantity and quality, featured by high speed but poor quality (Baoping REN, 2010), which has
brought a worry for the sustainable economic development in China. Hence, pursuing answers to
questions such as what is the reason for the inconsistency of economic growth in terms of quantity
and quality in China, what are the conditions contributing to the inconsistency and how to
realize the consistency are vital nowadays.

The Description of the Inconsistency of Chinas Economic Growth in Terms of Quantity and
Quality
The inconsistency of Chinas economic growth in terms of quantity and quality is shown in
horizontal and vertical dimensions; the vertical inconsistency represents the gross national level,
and the horizontal inconsistency refers to the great difference of provinces in the ranking of
economic growth quantity and quality.
The Inconsistency of Economic Growth Fluctuation in Terms of Quantity and Quality in
China
The quantity and quality of economic growth compare to the two sides of a coin, they are the two
parts of the same issue, and forms the complete system of economic growth. The quality of
economic growth is the result of quantitative accumulation in certain phase. Without the
quantitative economic growth, it is impossible to mention the quality.
In order to describe the inconsistency of the economic growth in terms of quantity and quality,
the measure index should be established. Here based on the research of Baoping Ren (2012), QIEG
(Qualitative Index of Economic Growth) is used to describe the quality of economic growth, which
involves 6 dimensions, namely the efficiency, the structure, the stability, the welfare change and
output distribution, the cost of resource usage and ecological environment, and the national
economy proficiency. To describe the economic growth in terms of quantity, the gross GDP is used,

8
to be exact, the real GDP with 2000 as the base year is applied to measure the quantitative growth.
By comparing the quality and quantity between 2000 and 2012, the situation of economic growth is
shown in Table 1.
Table 1. The Comparison between quantity and quality of economic growth in China (20002012).
Real GDP Real GDP
Year QIEG Year QIEG
[billion Yuan] [billion Yuan]
2000 -0.6930 9921.455 2007 0.7289 20326.870
2001 -0.9618 10744.967 2008 0.9702 22285.296
2002 -5.9487 11720.833 2009 1.2379 24338.708
2003 -0.1914 12895.890 2010 1.4349 26879.442
2004 0.4740 14196.446 2011 1.3811 29379.230
2005 0.3286 15802.069 2012 1.7425 31641.431
2006 0.5381 17805.224

Figure 1. The Comparison between quantity and quality of economic growth in China.
Table 1 and Figure 1 show that, from 2000 to 2012, the trends of quantity and quality of
economic growth in China are not consistent. During this period, the real GDP shows an obviously
upward trend, but the quality index demonstrates a basically fluctuating upward trend. During
2000-2004, the economic growth fluctuated, with an index change from the bottom -0.6930 in 2000
to the top 0.4740 in 2004; and during 2005-2012, a stable upward tendency can be identified, from
0.3286 in 2005 up to 1.7425 in 2012.
Here, based on the research of Haiying Liu (2006), the coefficient is revised, which
demonstrates the asynchronous relation between economic growth quality advance and quantity
expansion.

(bn bn 1 ) / bn 1
=| | 1
( a n a n 1 ) / a n 1

in which, b represents QIEG, a is the real GDP to show the quantity of economic growth, n is
the year, then = 0 shows the synchronous expansion of both quantity and quality, otherwise,
0 shows the asynchronous trends of them.

9
 Figure 2. The coefficient showing the inconsistency between quality and quantity of Chinas economic growth.
So the values between 2001 and 2012 can be drawn, shown in Figure 2. It can be seen that
the asynchronous trend between the quality and quantity is normal, and fortunately, the
asynchronous trend in the recent years has slowed down. Overall, in the gross term, the
inconsistency is beyond doubt.
The Inconsistency in the Provincial Dimension
A lot of discussion on the asynchronous feature of quality and quantity about Chinas economic
growth has focused on the gross dimension (Haiying LIU, 2006). In fact, besides the vertical
inconsistency, the horizontal inconsistency is also very obvious, that is the provinces are
inconsistent in terms of the ranking of their economic growth quantity and quality. By examining
the economic growth quality of all provinces, monotonous regions and central government
administrated cities, which all belong to provincial level, the QIEG of them have been obtained to
measure economic growth quality, and the rank of provinces is achieved based on this index
system. The gross GDP of provinces are chosen to measure the quantity of their economic growth.
The ranking and changes of provinces in terms of quantity and quality of economic growth in 2012
are shown in Table 2.
Table 2. The ranking of provinces in terms of quantity and quality of economic growth.
Ranking of Ranking of Ranking of Ranking of
economic economic economic economic
Province Difference* Province Difference
growth growth growth growth
quality quantity quality quantity
Beijing 1 15 +14 Jiangxi 16 19 +3
Shanghai 2 9 +7 Heilongjiang 17 13 -4
Tianjin 3 17 +14 Henan 18 5 -13
Canton 4 2 -2 Jilin 19 20 +1
Zhejiang 5 4 -1 Shaanxi 20 21 +1
Jiangsu 6 1 -5 Hebei 21 7 -14
Hainan 7 28 +21 Yunnan 22 23 +1
Fujian 8 10 +2 Shanxi 23 24 +1
Chongqing 9 22 +13 Guizhou 24 26 +2
Shandong 10 3 -7 Xinjiang 25 25 0
Anhui 11 14 +3 Ningxia 26 30 +4
Liaoning 12 6 -6 Gansu 27 27 0
Inner
Sichuan 13 8 -5 28 16 -12
ongolia
Hubei 14 12 -2 Qinghai 29 29 0
Hunan 15 11 -4 Guangxi 30 18 -12
*Difference refers to the ranking of economic grow quantity minus that of quality.

10
 Table 2 shows that in 2012, when the quality ranking is compared to the quantity ranking, the top
five provinces with positive difference are Hainan (+21), Tianjin (+14), Beijing (+14), Chongqing
(+13) and Shanghai (+7), which represents although these provinces economy experienced not
high growth in terms of quantity, they have quite good growth in quality. Similarly, the top five
provinces with negative difference are Hebei (-14), Henan (-13), Inner Mongolia (-12), Guangxi
(-12), and Shandong (-7), these provinces experienced quite big scale of economic growth in terms
of quantity, but the quality of them are far from ideal. So the asynchronous relation can also be
found in province dimension.

The Theoretical Interpretation to the Inconsistency of Quantitative and Qualitative

Fluctuations of Chinas Economic Growth
In global economy, if seen from purchase power parity, in those countries with the same income per
capita, people may have very different living quality. Some countries are experiencing
unprecedented fast economic growth, but facing gradually complex social and economic problems,
China is a good case. The following are the reasons why the quality and quantity of economic
growth in China are not consistent, or synchronous:
The Quality of Input and Output in the Process of Economic Growth Leads to the
Inconsistency of the Quantitative and Qualitative Economic Growth
In the long run process of economic growth, people always exchange maximum benefit for
minimum cost. So the input and output are rationally proportional, that is less input can bring out
more output, then the output quality of economic growth can be regarded as good. The fast growth
of Chinas economy in great part depends on a lot of inputs of capital, labor and land. Researchers
like Xiaolu Wang (2009) have shown that capital formation rate in China from 1980 to 1990
fluctuated around 35%, recent years it rose to about 42%, and high capital formation rate has been
one of the most dominant factors in Chinas economic growth. This kind of high level of input has
supported the miracle of Chinas economic development in the quantity terms. However, if the
quality of economic quality is measured by the input-output efficiency, the production mode
featured by high input, low output, and low technology has led to the situation that the same level of
raw materials and resource input bring about less value, so the quality must be poor. Hence in order
to realize the sustainable development, the economic growth demands increasing the resource mix
quality and resource usage efficiency, lowering the input and enlarging output (Jiye Wang, 2000).
So the difference of efficiency and quality in the input and output directly leads to the inconsistency
of the economic growth in terms of quantity and quality.
The High Cost of Resource and Environment in Economic Growth Leads to the Inconsistency.
The key to quality-oriented economic growth is to make rational use of natural resource and protect
environment. Since the founding of Peoples Republic of China, over 10 folds of GDP growth is the
tradeoff of over 40 folds of mineral resource consumption. The high level of capital input in the
long run has been based on the high consumption of resources and energy. Compared with the
advanced countries in the world, the thermal power supplys coal consumption is higher by 22.5%,
large and medium-sized iron and steel enterprises comparable energy consumption per ton of steel
is higher by 21%, and the comprehensive energy consumption of cement industry is higher by 45%.
All these high level of energy consumption and input makes resources and environment suffer. A
research has shown 13.9% of GDP in China is obtained in the cost of resource over consumption,
environmental pollution and ecological downgrade (Minjun Shi, 2009). So even the performance of
economy in China in the past years has been outstanding, if judged together by the environmental
cost, the quality of economic growth is troublesome. In the regional dimension, some places enjoy
quite high level of industrial softness, that is, service industry takes high percentage in economy,
and their economic growth process involves low level of destruction to the resources and
environment. However, in some regions, heavy industries take the major part, if the local

11
governments have not sound governance, and there is not clear ownership system, the destruction to
the environment is quite obvious. This also leads to the inconsistency of the ranking.
The Instability in Economic Growth Process Leads to the Inconsistency.
The stable economic growth consists of two features: one is the fluctuation of economic growth rate
is small, and the other is the frequency of fluctuation is low (Baoping Ren, 2010). The stability of
economic growth is one of the most important dimensions to measure the quality, because it can
generally demonstrate the basic trend and situation over a longer period of time. Although after the
opening and reform policy was carried out, the economic growth in China has shown the tiny stable
characteristics in economic cycle fluctuation (Shucheng Liu, 2007), that is the radical change has
been smoothed, but at the same time, in certain regions, the investment impulsion is very strong,
and the competition of governments is serious, then the macro stability of various regions varies
significantly, which leads to the inconsistency of economic growth in terms of quality and quantity.
Besides this, the whole country experiences the external forces such as financial crisis and
European debt crisis, when the macro control of the national level is limited, the fluctuation of the
macro-economy is inevitable, the roaring pressure of inflation in recent years all shows that the
economy has poor stability, and the quality lags behind the quantity growth.
The Imperfect Income Distribution and Welfare Leads to the Inconsistency.
If the result of economic growth is examined, no matter quality or quantity is concerned, the basic
aim is to help improve the living and development of human being. According to the report of the
World Bank in 2007, the percentage of salary in GDP in China has shown decreasing trend, from
54% in 1997 to 41.4% in 2006, which is much lower than the 57% of US (Fang and Yu, 2008). It
can be said that although the economy in China has achieved fast growth, the common people get
the lowest level of income and welfare. Similarly, in terms of the income distribution, the GINI
efficient of China in 1952 is 0.153, but in 2007 the evaluation of the Asian Development Bank is
0.473, basically it is sure that the GINI efficient in China recently has surpassed the alerting value
of 0.4, such big gap of income distribution directly leads to the serious social conflict. Besides
these, the deterioration of the environment, poorly-guaranteed food quality, the insufficient
provision of public goods are affecting Chinese people's welfare level in the past, present and
future, the vast majority of people cannot feel happiness from the bottom of heart. The economic
growth representing only by GDP growing, without all the people sharing the fruits of growth, such
kind of mode is not sustainable.
The above mentioned inconsistency means that the quantity and quality of economic growth are
often asynchronous, only paying attention to the growth in terms of quantity cannot bring the
long-term sustainable development, the focus must be changed to great attention to the quality
issue, including bettering the low efficiency, emphasizing the resource saving and environment
protection, ironing the steep fluctuations, and significantly improving the social welfare of common
people.

The Routes to Realize the Consistency of Economic Growth in Terms of Quantity and Quality
In the past China paid more attention to the economic growth in terms of quantity, while ignoring
the quality, which resulted that the quality and quantity of economic growth are not consistent, so
that the economic growth showed a high speed, but low quality characteristics. In the background of
economic transition and industrial upgrading, China's economic growth will focus more on quality,
not speed. The future economic growth in China needs to improve the quality; the transformation
from quantity-oriented to quality-oriented economic growth must be fastened, so as to realize the
unity of quality and quantity.
To Promote the Transformation of Economic Development Mode.
The impacts of the world economic crisis and the current conflicts appeared in the process of
economic growth in China show that, with the constant returns to scale, simply relying on the scale
12
expansion, or quantity-oriented economic growth mode has come to an end, it is urgent to transform
the economic development mode. To improve the quality of economic growth, we must promote the
transition of China's economic development, from emphasizing quantity and speed to emphasizing
quality and benefit type; from the resource waste and environmental pollution to the resource
conservation and environment friendly growth; from economic and social disorder to economic
society coordinated growth; and from the growth by cost expansion to the high efficiency; from
input-type economic growth to endogenous technological progress-type growth; from the growth
driven by the government investment to that driven by the market investment; from the
unsustainable to sustainable growth; from export-led growth to domestic demand driven growth;
from the unbalance of structure transformation to the optimization of structure; from high carbon
economy to a low carbon economy; from the growth depending on technology import to the growth
depending on independent innovation; from "minority getting rich first" to "common prosperity".
(Baoping Ren, 2011).
To Accelerate the Upgrading of the Industrial Structure.
The upgrading of the industrial structure enables the effective and reasonable allocation of
resources, so as to improve the quality of growth. In the different stages of economic growth, its
leading industry is different, so it will form the different industry structure. If the industrial structure
is reasonable, it may contribute greatly to the quality of economic growth. So improving the quality
of the economic growth must take the upgrading of the industrial structure as the core. Firstly, more
investment should be done to agriculture, fastening the transformation of traditional agriculture,
improving agricultural industrialization and modernization. Second, the mode of economic growth
should be changed and the industrial performance improved by following the new route of
industrialization. Third, the service industry should be developed further, focusing on the emerging
industries with high added value, establishing a modern industrial system. Four, the upgrading of
traditional industries should be strengthened by transforming and improving the R&D investment,
encouraging independent innovation, accelerating the development of strategic emerging industries.
To Develop Innovative Economy.
The quantity-oriented economic growth is driven by productive factors, and the quality-oriented
economic growth is driven by innovation. In order to improve the quality of economic growth in
China, innovative economy must be developed: First, enterprises capability of independent
innovation should be improved, promoting the transformation of scientific and technological
achievements into practical productive forces, the human capital accumulation should be also paid
great attention, making science, technology, knowledge the leading role in economic growth (Hong
Yinxing, 2011); Second, the transformation of the traditional sector should be accelerated,
increasing the technology and human capital input in the traditional sector, the upgrading of the
industrial structure should be promoted, helping the enterprise or the entire industry transfer from
original the capital or labor driven to knowledge driven, the industrial structure should be bettered
from low level to high level; Third, China's economic growth should be improved from factor
driven to technology driven, from the simple growth depending on inputs to efficient growth,
promoting the formation of increasing returns to scale mechanism in economic growth.
To Strengthen Asset Management to Resources.
To achieve the overall goal of improving the quality of economic growth, the key lies in
strengthening the asset management to resources. It means the contribution of various factors to the
growth and China's resource should be considered, introducing property right into market
mechanisms as the essence, changing the operating mechanism of administrative allocation and use
of resources free of charge, so as to continuously improve the combination quality and
configuration of quality factors in economic growth; Second, the positive and negative impacts of
economic development to resources should be scientifically evaluated and guided, ensuring the best
allocation of resources, environment, economy and society, protecting resources seriously, strictly
implementing the current land resource planning, carrying on the management of resources,
13
bettering the regulation on allocating resources, improving resource utilization efficiency; Third, the
compensation mechanism for the development and utilization of resources and ecological recovery
should be further improved, making the same amount of investment bring more output, improving
the supply mechanism of elements.
To Promote the Institution Innovation.
Improving the quality of economic growth basically depends on improving the supply, of which the
most important task is to promote institutional innovation, establish a system compatible with the
quality-oriented economic growth. First, the administrative management system should be
innovated, setting up the scientific mechanism of government decision-making. The government
acting long-term should be encouraged, which means the government focuses on changing the
mode of economic growth" (Chen Zhao, 2007), on the basis of it, the scientific and rational
mechanism of government decision-making can be established; Second, the system of science,
technology and education should be innovated, providing knowledge, technology and personnel
support for the quality of economic growth. Through the science and technology system innovation,
the creativity in key technologies in the economic development should be expanded, forming a
group of key technologies with independent intellectual property rights. Through the innovation of
education system, high-quality talents should be cultivated, optimizing the educational structure,
implementing quality education, enlarging the educational resources, speeding up the training of
innovative talents; Third, the innovation of the income distribution system should be promoted,
improving the social security system. The function of the government in regulating income
distribution should be strengthened, adjusting the income gap; standardizing the distribution order,
properly regulating the excessively high income of some monopoly industries. The proportion of
medium income population should be enlarged, increasing the income of the low-income
population, guaranteeing the basic living of the urban poor and rural poverty population.

Reference
[1] Chen, Z., Lu, M., The role of government in the function of economic growth phases
Academic Monthly, 2007(10).
[2] Hong, Y.X., Important Concepts on innovation driven and innovative economy[J]. Qunzhong,
2011 (8).
[3] Liu, H.Y. [2006], The Empirical Study on Quality Promotion and Scale Expansion of
Economic Growth in China [J]. Economics Science, 2006(2)
[4] Liu, S.C., On both good and fast Development [J]. Economics Research, 2007(6).
[5] Ren, B.P., The Economic Growth Quality Report (2010) [M], Beijing: China Economy Press,
2010
[6] Ren, B.P., The Economic Growth Quality Report: The Inclusive Economic Growth (2011) [M],
Beijing: China Economy Press, 2012
[7] Ren, B.P., The Economic Growth Quality Report: the CIEG and Provincial Analysis (2012)
[M], Beijing: China Economy Press, 2012
[8] Shi, M.J., Ma, G.X., The resource and environment cost for the economic growth in China:
empirical study on green national savings [M], Beijing: Science Publishing House, 2009
[9] Wang, X.L., Fan, G., Liu, P., The Economic Growth Mode Transformation and the
Sustainability of Growth [J]. Economics Research, 2009 (1)
[10] Wang, J.Y., The macro point of view on promoting economic growth quality [J]. Macro
Economy Research, 2000 (3).

14
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Authorized Economic Operator

Hui-hua HUANG
Department of Marketing and Logistics, China University of Technology,
Taipei City/116, Taiwan
Email: laurahhh@cute.edu.tw

Keywords: 911, Security, Supply chain, Authorized economic operator.

Abstract. The U.S.A. suffered severe casualties and damages due to 911 Terrorist Attacks occurred
in New York on Sep. 11, 2001. Therefore, the security issue of supply chain is gaining worldwide
attention. AEO certificate with the customs set by respective countries so as to ensure a safe supply
chain of goods end-to-end. This paper reviewed the current literature on AEO to analyze its concepts,
incentives, and incentives in different countries. Finally, we concluded this paper with suggestions for
future research areas.

Introduction
The U.S.A. suffered severe casualties and damages due to 911 Terrorist Attacks occurred in New
York on Sep. 11, 2001. After this incident, the U.S.A., in order to defend the security of the land,
closed ports and sub-airports temporarily. The U.S.A. also suffered heavy hit on its international
economy with an overall economic losses of about USD 733 trillion equivalent to half of the USA
GDP. Therefore, the security issue of supply chain is gaining worldwide attention. The U.S.A. took
the lead in developing systems to strengthen specifications, requirements, and measures to ensure its
homeland security [1]. Security measures, implemented since 2002, included Container Security
Initiative (CSI), Customs-Trade Partnership against Terrorism (C-TPAT), Maritime Transportation
Security Act, Smart and Secure Trade Lane (SST), and so on [2].
In order to ensure the safety and convenience of global trade and develop the global economy,
World Customs Organization (WCO) established Framework of Standards to Security and Facilitate
Global (SAFE) in June 2005 [3]. In 2006, in order to provide a safer supply chain management
system, WCO applied Authorized Economic Operator (AEO), a type of security certificate, to WCO
SAFF. EU assisted in importing WCO SAFF system and implemented AEO system formally on
January 1, 2008. All the participants in international trades should obtain the AEO certificate with the
customs set by respective countries so as to ensure a safe supply chain of goods end-to-end.
Taiwan does not belong to WCO. As an island country, Taiwan boasts a quite large import and
export trade volume and plays an important role in global trades. Based on the statistics of import and
export trade by the Ministry of Finance, the cumulative total trade in 2015 amounted to USD 523.4
billion, while the total export amounted to USD 277.6 billion and the total import, USD 245.8 billion.
It can be seen that global trade is related to Taiwan's economic lifeline, whose safety issue on supply
chain is bound to have a significant impact on Taiwan's performance in global trades. In the past,
Taiwanese scholars did few researches on AEO and had not summarized or compared the
implementation of AEO by the U.S.A., EU, and Taiwan. This paper reviewed the current literature on
AEO to analyze its concepts, incentives, and incentives in different countries. Finally, we concluded
this paper with suggestions for future research areas.
Introduction of C-TPAT in the U.S.A.
C-TPAT was a voluntary plan proposed by the Customs and Border Protection (CBP) in U.S.A. after
911Terrorist Attacks, aiming to establish a "complete supply chain security management system" by
CBP and relevant industries to guarantee the entire delivery safety of the supply chain, from the initial

15
loading of goods to the arrival of destination countries, enhance the safe delivery of information and
goods during the process, and prevent the invasion by terrorists and threats to national safety. The
establishment of an overall partnership in the supply can strengthen the security mechanisms of
international transportation and the whole supply chain in the international trades among enterprises.
Meanwhile, the U.S.A. government, due to 911 Terrorist Attacks, further expanded Free and Secure
Trade Program (FAST) previously promoted by the U.S.A., Canada, and Mexico jointly as C-TPAT.
It can be seen that, the opportunities of goods imported from Canada to Mexico were more than those
of other countries, which deepened the concerns on security by the U.S.A. Thus, the plan was led by
the U.S.A. Customs and completed together with relevant practitioners in order to establish a
partnership abided by all, strengthen the global supply chain, and ensure national security. The main
objective of C-TPAT was to ensure the transport security from the starting point to the end point of
the entire supply chain system. Customs can fully grasp information security. Thus, the security
among global free trade countries will be enhanced. And containers will be prevented from being used
as attack tools by people with evil intents. As C-TPAT members strengthen their security measures to
comply with the clearly defined safety standards, CBP must in turn provide more incentives. In May
2005, CBP changed to adopt a three-stage benefit framework. The more the importers of C-TPAT do,
the more incentives they will enjoy [2].
Pillar 1 Customs-to-customs standards. When the qualified importers obtain significantly low
risk index, the ratios of the safety inspection of their goods will be low. Their rates of random sample
testing in compliance with evaluation will be lower than non-C-TPAT importers. And their goods
will not be included in the screening targets with the highest inspection. The three situations offer a
low inspection rate to Pillar 1.
Pillar 2 Customs-to business standards. Along with increasing commitment and successful
verification, the importers who comply with basic safety standards after verification can enjoy the
incentives of Pillar 2 which includes all the incentives of Pillar 1. The low risk index of Pillar 2 is
twice as much as that of Pillar 1. Hence, the rate of safety inspection of goods will be significantly
lower than Pillar 1.
Pillar 3 Customs to other government and inter-government agencies. The successfully
verified importers who exceed basic safety standards and implement best security practices can enjoy
the favorable conditions of Pillar 3 which covers all the incentives of Pillar 1 and 2. Pillar 3 is a
prerequisite to obtain the "green line clearance" authorized by customs and CBP. They can enjoy zero
inspection when their goods arrive. Table 1. shows the number of the practitioners in the U.S.A.
supply chain who have passed the certification of C-TPAT so far.
Table 1. The Number of Passed the Certification of in U.S.A.
Number of the C-TPAT Certificate
Practitioners
Holders
Importers 4,320
Carriers 3,988
Brokers 856
Foreign Manufacturers 1,374
Consolidators/3PLs 100
Marine Port Authorities and Terminal Operators 55
Total 10,693
Source: C-TPAT - CBP.gov, 2014

Introduction of AEO System in EU

EU started to plan customs security schemes since 2003 which included two parts, namely, customs
regulatory standards and trade facilitation. In terms of customs regulatory standards, EU established
common regulatory standards and risk indicators among 27 member countries so that the member
countries would acknowledge the safety standards and customs regulatory results. Meanwhile, EU
16
looked for close cooperation with the customs and relevant authorizes of non-EU member countries.
EU promoted measures related to AEO. The Council and the Executive Committee of EU drafted
Customs Vision Declarations and Multi-year Strategic Plan in December 2014. On January 1, 2008,
the certification scheme of AEO came into effect. Up to May 2014, 168 out of the 179 WCO member
countries had signed SAFE Framework, wherein, the customs of 53 member countries had
implemented AEO system with another 10 being about to do so. EU has a total of 27 member
countries. They all acknowledged the qualification of AEO. Table 2 showed the number countries of
AEO certificates holders in EU[3].
Table 2. The Number Countries of AEO Certificates Holders in EU.

Rank Country Number of AEO Certificates Holders

1 Germany 6,360
2 Holland 1,345
3 France 932
4 Poland 771
5 Italy 641
6 Spain 535
Others 2,280
Total: 12,864
Source: AEO Teaching Material, 2015

Introduction of AEO System in Taiwan

Taiwan promoted the implementation of AEO system at two stages. The first stage was the issue and
implementation of Regulations Governing the Customs Declaration of Import/Export Goods of the
Authorized Economic Operators on December 25, 2009 so as to allow exporters and importers to go
through AEO security certification first. The second stage was to include all the practitioners in the
supply chain in the scope of security certification. Taiwan announced on May 12, 2012 that all the
international supply chain operators except importers/exporters should go through AEO security
certification [4]. Since January 2011, the newly added subjects included: manufacturers, freight
forwarders, customs brokers, consolidators, terminal operators, highway carriers, air carriers, and sea
carriers and port terminal operators [5].
As AEO certification is carried out by customs personnel on site, the interaction with customs
before the inspection is significant, such as invitation of customs personnel to witness the kick-off
meeting, application for certification, qualification review, document review, on-site inspection, and
so on. In order to encourage enterprises to obtain AEO certificates, customs set corresponding
incentives to different industries, expecting to obtain the benefit of fast customs clearance with less or
no sample testing. Meanwhile, there are incentives like single-window processing, no invasive
inspection, no margin, and so on.
Taiwan constantly expands its negotiation about AEO multilateral recognition with other countries.
Its initial subjects of negotiation include the U.S.A., EU, Japan, Mainland China, Singapore and State
of Israel. Currently, Taiwan, U.S.A., Singapore, State of Israel mutual recognize each other's AEO
systems. Up to March 2016, Taiwan had 656 practitioners who passed the certification as shown in
Table 3.

17
 Table 3. The Practitioners with AEO Certificates in Taiwan.
Number of AEO
Type Practitioners
Certificates Holders
Exporters 119
General AEO
Importers 120
Manufacturers 114
Freight Forwarders 112
Customs Brokers 139
Terminal Operators 30
Security
highway carriers 14
Certification of
Air Carriers 3
AEO
Sea Carriers 5
Port Terminal
0
Operators
Total 656
Source: The Customs Administration, The Ministry of Finance,
2016

Conclusion
After 911 Terrorist Attacks, the security of supply chain has become the prime agenda of international
trade, logistics, and supply chain management. Besides the U.S.A., other countries in the world, like
EU, Japan, Singapore, Korea, and Mainland China pay high attention to the issue. It affects not only
the ship-owning companies, airlines, and consolidators of the U.S.A., but also all the stakeholders in
supply chain, including exporters, importers, manufacturers, consolidators, customs brokers, terminal
operators, air carriers, sea carriers, and marine port authorities, and so on. As the practitioners pay
more attention to the security of supply chain, exporters require themselves to obtain AEO security
certificate and expect their business partners to do so on. We suggest that the practitioners of
international supply chain shall submit their application soon to ensure the security of goods and trade
convenience, achieve end-to-end safety protection of supply chain, and establish the new concepts of
safe and convenient international supply chain.

References
[1] C-TPAT Website: Customs-Trade Partnership Against Terrorism: http://www.cbp.gov/
border-security/ports-entry/cargo-security/c-tpat-customs-trade-partnership-against-terrorism
[2] U.S. Customs and Border Protection Website: http://www.cbp.gov/
[3] World Customs Organization Website: http://www.wcoomd.org/
[4] M. C. Chiou, The security system and implement strategy of international supply chain, The
Master Thesis of the National Kaohsiung Marine University, 2009.
[5] The Customs Administration Website: Ministry of Finance: http://web.customs.gov. tw/mp.asp?mp=1

18
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Combined Poly-instance Purchase Decisions in a Cloud

Computing Market Based on Clients
Yu-lu LIU1, a, *, Dong-lin CHEN2, Min FU2 and Xiao-xia LUO3
1
College of Health & Human Science, Purdue University, West Lafayette, IN 47906, USA
2
School of Economics, Wuhan University of Technology, Wuhan 430070, China
3
School of Navigation, Wuhan University of Technology, Wuhan 430063, China
a
Email: yululiu@purdue.edu
*Corresponding author

Keywords: Cloud computing, Polyinstance, Genetic algorithm.

Abstract. A client-based cloud computing market polyinstance combination purchase decision

model is constructed in this paper. Starting with a single objective constraint model that optimize cost
and service time, in which features of different instance types and standards were combined. The
proposed model is solved by genetic algorithm. Then, various users needs are taken into full
consideration by formulating a double objective constraint model to achieve the objective of
minimizing the user purchase cost and service time at the same time.

Introduction
Cloud Service Market Trade Theories
In respect of the cloud computing market mechanism, the Grid Computing in the Department of
Computer Science & Software Engineering of the University of Melbourne in Australia put forward
the pay-as-you-go cloud computing utility market mechanism [1], which simplified the trade process
between clients and suppliers. Meanwhile, it proposed the market trade framework named Mandi,
which rendered possible the exchange of computing resources between clients and suppliers
according to their respective needs. It also developed the market simulation management tool
Cloudbus [2]. Korean scholars discussed issue about the multiple-cloud-supplier market structure [3],
and established an auction-based service combinatorial auction platform. In this model, multiple
cloud suppliers announce the bid price as a whole, which can make the competition between suppliers
less intense and save their time. The idea of a global dynamic cloud computing trade market is
reflected in Buyya and Yeos work [4]. It designed a SLA-based and market-oriented cloud
computing resource allocation process, including clients, multiple cloud suppliers, agents and
institutions such as bank, and it systematically proposed the trading mechanism in the cloud
computing market in the context of multiple cloud suppliers.
The proposing of the role of an agent in the cloud resource market system has attracted wide
attention among scholars. Grivas [5] conducted a research on the agent service process of the cloud
computing market. With customers needs becoming more complex and variegated, the simple cloud
service can no longer meet their needs, so to turn the single cloud service into one with more powerful
functions and better quality has become the necessary solution. Pan [6] proposed the
cloud-agent-based service trade model and service negotiation model based on the multi-attribute
decision-making process, and constructed the concurrent negotiation model which proposed that the
intermediary negotiator whose service provider and client is the cloud agent should conduct
automatic service negotiation so as to better meet the needs of the service providers and clients
multi-attribute service negotiation and trade. Tang [7] employed the General Equilibrium theory of
the market game theory to establish the multiple-cloud-agent-based combination trading model and
dynamic competitive bidding mechanism, which enables the trading agent to maximize the utility
expectation of the three basic mechanism elements, i.e. service provider, user and operating

19
mechanism through prediction and learning, and which can also help determine its mechanism
internal market price.
From the perspective of the perfection of trading structure and optimal market management, a
cloud service combination trading model was proposed, which realizes the service combination
between different cloud service providers at the same level and between service providers at different
levels [8]. Moreover, a multiple-cloud-environment-oriented and cloud-agent-based market
mechanism directed at different cloud service providers was proposed to optimize the allocation of
virtual resources [9].
Combinatorial Decision-Making Based on Objective Constraint Problem in the Context of
Cloud Computing
The decision problem in the context of cloud computing of the current studies is mainly out of
consideration for QoS (Quality of Service) and cost constraint. Sivadon proposed the Robust Cloud
Resource Provisioning (RCRP) and Optimization of Resource Provisioning Cost in Cloud
Computing (OCRP) [10, 11] to study the optimal decision problems of the two types of cloud services,
i.e. reserving customization instance and operating as needed instance. The experiment shows that
these two algorithms can significantly reduce the users cost, and it also proposed the Virtual Instance
Provisioning which can minimize the users purchase cost both in the short and long term on top of
the adoption of the spot goods bidding instance [12].
In Jiang, Bian, and Xues Work [13], it was proposed that two algorithms based on IaaS partial
critical path and IaaS deadline distribution, and studied the pricing strategies of realizing cost
minimization and QoS maximization based on these two algorithms.
Ma, et al. [14] constructed a multi-factor objective model based on time, cost [15], usability, and
safety via the genetic algorithm with SaaS quality of service optimization as its objective.
It was analyzed by Yan, et al. [16] that the resource distribution mechanism of realizing the
optimization of the quality of service of this platform under the constraint of time.
The decision-making behaviors in the context of cloud computing normally show themselves as
something that can match the known decision resources with the needed information under certain
objective conditions, according to the clients needs of intelligent decisions in the context of cloud
computing to look for the optimal (or the most effective) decision resource that can satisfy the
solution of decision problems, and therefore coordinate and manage these virtual decision resources
as a whole and establish the coordination mechanism to manage decision resources as a whole in
order to better provide the users with various services.
Overall, there exist the following problems in the current studies: (1) only a few studies take the
quantitative influence tendency into consideration in respect of how cloud suppliers price their own
unused cloud resources, that is, the study on the price fluctuation tendency of the spot goods bidding
instance, and such studies lack the methods of constructing quantitative models and algorithms to
predict; (2) in terms of the processing and analysis of the information of the clients needs, how to
better obtain decision information needed by the decision process from the cloud computing
environment, how to process the dynamic information of the clients needs in enormous amounts of
decision information, and how to use the current information to predict the users needs in the future
are still not clear in the current studies; (3) there lacks the construction of purchase decision
quantitative decisions under the constraint of both cost and time, and few studies have discussed the
cloud resource polyinstance purchase model, let alone the optimal purchase method.

Problem Statement
Supposing a user needs a batch of cloud resource processing tasks in the context of cloud computing,
there are several (m) kinds of possible processing schemes, and each scheme has some limitations in
its processing capacity. Now one or more solutions based on a certain decision objective (e.g. the
shortest time, or the smallest budget) needs to be selected, and a certain task load to each scheme is to
be assigned.
20
 Considering that the to-be-selected processes will have various instance types that process tasks
together, that is, a certain combination scheme i in which ni types of instances process the tasks
together, and supposing that the total traffic processed together does not change, the data processing
capacity of this combination scheme is determined by the processing capacity of the instance with the
smallest data processing capacity per unit of time of all the instance types.
The parameters are defined as follows:
Dtotal amount of client needs;
Ttotal time of processing the tasks of the ith combination scheme;
Sij (i=1, 2, , m; j=1, 2, , n): the service resource amount that can be provided by the jth instance
type of the ith combination scheme;
Cij (i=1, 2, , m; j=1, 2, , n): the purchase cost of the jth instance type of the ith combination
scheme;
tij (i=1, 2, , m; j=1, 2, , n): time needed by the jth instance type of the ith combination scheme
to process the tasks;
ai (i=1, 2, , m): task load of the ith combination scheme.
This paper gave a twofold definition of the virtual machine instance of cloud computing. First, in
terms of instance types, it defined three types: Operating as Needed Instance (ONI) with secured
service and highest unit-price, Reserving Customization Instance (RCI) with secured service,
customizing in advance, and medium unit-price, Spot Goods Bidding Instance (SGBI) with
unsecured service, bidding purchase needed, and lowest unit-price. In terms of the definition of the
instance size, it selected 3 types of standard instances: Small Instance (slowest processing speed,
lowest unit-price), Medium Instance (medium processing speed, medium unit-price), and Large
Instance (highest processing speed, highest unit-price). Regarding the possible combination scenarios
of users to instance types, the first is the combination of the self-care type. Since the ONI and RCI
both belong to the instance type whose service is secured, and both prices are higher than SGBI, this
paper did not take the selection of ONI and RCI at the same time into consideration out of cost
reasons, so there exist two combination schemes: the combination of ONI and SGNI, and of RCI and
SGBI. In the two combination schemes, each has three selections of the instance type, and the
schemes are shown in Table 1:
Table 1: Selection of Combination Schemes
Scheme Combination Scheme of the Instance Type Instance Size
Large Instance
Operating as Needed Instance
Scheme 1 Medium Instance
+ Spot Goods Bidding Instance
Small Instance
Large Instance
Reserving Customization Instance
Scheme 2 Medium Instance
+ Spot Goods Bidding Instance
Small Instance

Application of Genetic Algorithm

Supposing that the task loads assigned to the Small, Medium and Large Instances are x1 , x2 , x3
respectively, satisfying x1 x2 x3 100 (Here it is supposed that the total task load is 100).
Therefore, in this distribution scheme, the budget of a users completing the whole task can be shown
as:

f=p1x1+p2x2+p3x3 (1)

in which, x1 0, x2 0, x3 0 , and x1 +x2 +x3 =100 . Therefore, the original proposition is

equivalently turned into a condition-constrained problem:
x1 +x2 +x3 =100

x 0, x2 0, x3 0
Under the condition of 1 ,solve min f1
21
 It is different from the normal condition constrained problem. As there are few constraint
conditions, traditional methods (such as Lagrange conditional extreme value, gradient method)
cannot solve this problem. This paper used the genetic algorithm, a non-linear optimization method,
to solve the problem of lacking constraint conditions, and finally an optimal feasible solution was
obtained. The steps are as follows in details:
Initial Population
N genes are randomly produced (one three-dimension, each vector is an integer within the range of
[0,100]), and the N genes are used as the initial population. The data of the ith dimension of the
three-dimensional initial vector represent xi ( i 1, 2,3 ).
Encoding & Decoding
Encoding denotes that every gene is represented by a multi-dimensional 0-1 vector so that the
subsequent hereditary steps can be better performed.
Each gene of the initial population will be encoded, that is, each component of the vector of each
gene represented by a 6-digit binary number. For example, (, 4, ) is encoded as (, 0, 0, 0, 1, 0,
0, ). In doing so, the initial 3-dimensional vector is represented as an 18-dimensional vector with
only 0 and 1.
Backwardly, the decoding process is to represent every three of the binary numbers that correspond
with the 18-dimensional vector as a decimal number so as to turn the 18-dimensional vector into a
3-dimensional vector.
Fitness Function
Fitness is one of the conceptions in genetics, which means the ability of an individual to survive.
The higher the fitness is, the bigger the chance is to be inherited. The fitness in this model is de facto
the reciprocal of the target function:

fitness=1/f1 (2)

where a higher fitness means a smaller objective function with which the tactic corresponds so that
the final genetic result is able to find the tactic selection in which we look for the minimum objective
function.
Selection Operation, select the individuals that will participate in crossover and mutation.
Crossover and mutation means that a certain part of each gene will be intersected and interchanged
at a certain probability. The method is shown as follows:
Computation of the distribution of cumulative fitness: firstly, the individual fitness divided by the
total fitness

Fitness(i )
pFit (3)
Fitness
The probability that the Ith individual has, the denominator is the sum of all fitness
i
p(i )
1
j
pFit(j ) (4)

22
 If there are 10 individuals, the following results can be obtained
0.1 0.05 0.2 0.1
Cumulative fitness
0.15 0.35 0.45
N random numbers 0-1 are randomly produced. If rand<p(1); it means that the first individual is
chosen. If p(i)<rand<=p(i+1), the i+1th individual is chosen. For example, after 10 individuals are
chosen
Individual order number Times of being chosen
1 2
4 4
5 1
6 1
9 2
Individuals that have participated in the crossover and mutation are chosen from the 10. The
individual with the best fitness can be kept as required.
Use the individual with the biggest fitness to replace the one with the smallest fitness in the ten (or
randomly replace one). The process above is how to choose the individual of crossover and mutation.
Crossover
Determine the random number of the produced population. Set the crossover probability as P,
which is usually large, ranging from 0.6 to 0.9. If it is smaller than P, then it is necessary for the
population which is 10 and has participated in the crossover to produce 10 random numbers P=0.8
0.3500 0.1966 0.2511 0.6160 0.4733 0.3517 0.8308 0.5853 0.5497 0.9172
One can see that except for the seventh and last one, all of the other individuals need to participate
in the crossover. To choose the two individuals for crossover, one can use the method of random
pairing. (Once an odd number is produced, an individual should be abandoned) An intersection point
is randomly produced, (single point intersection) where an integer M within the range of 1 to 25 is
randomly produced. Interchange the part on the right side of M. The encoding is as follows:
110100100
101010011
The location that represents the crossover is M=5 till the last two individuals are both interchanged
(or use other crossover methods, such as the partitioned crossover). After the crossover, it will
become:
1101 10011
1010 00100
Mutation
In order to better simulate the hereditary process, mutation needs to be taken into consideration.
Mutation means that a certain part of a gene changes at a very small probability, which is small
p 0.1
In the same manner, N random numbers are randomly produced, e.g. P=0.05. 10 numbers are
randomly produced as follows
0.2858 0.7572 0.7537 0.3804 0.5678 0.0759 0.0540 0.5308 0.7792 0.9340
One can see that no individual needs to mutate. If mutation is necessary, the location where
mutation happens can randomly produce M integers meaning that M locations need mutation. M is
shorter than the code length, e.g.
1215334
The mutation locations are 3, 5. The third is 1, and if the code 1-5, 1 can mutate into a number
between 2 to 5. The fifth is 3, and it can change to one of 1, 2, 4, and 5.
Check if the result after the crisscross mutation meets the constraint conditions. If not, repeat the
crisscross mutation.

23
 Termination
When re-computing fitness, repeat the steps above
Termination condition: set the largest number of iterations. This is the basic genetic algorithm.
Keeping the best mandatorily before can ensure local convergence. With more iterations, the
mutation probability becomes bigger.
Modeling of Single Objective Constraint Polyinstance Combination Purchase Decision
Modeling of Polyinstance Combination Purchase Decision under Budget Constraint
Model Formulation
When a user is drafting a combinatorial scheme, the time effect more often than not is an important
factor in making a purchase decision. When the data processing capacity of an instance combinatorial
scheme has limitations, the first thing is to take the purchase budget of the instance combination as the
constrained objective, that is, the budget that a user uses to purchase cloud resources is limited, and
construct the linear planning model that makes the time to complete this business the shortest as
follows:

m ni
minY2 ( tij )xi
i 1 j 1
(5)
m

i
ai
1
D (6)

ai min(Si1 ,Si 2 ,Si 3 ,...,Sini )(i 1,2,...,m) (7)

ai 0(i 1,2,...,m) (8)

Numerical Experiment
This paper takes Amazon as an example. In the two schemes, the two types of instances are
combined as per a certain ratio (here we assume that the combination ratio of the two schemes are
identical), which we set as a, and the spot goods bidding instance is Pspot at this time through the
third chapter, and is a known number. The need is obtained by means of the need prediction system
and is assumed to be 100. Select the instance price of each scheme as well as its transfer amount per
unit time as shown in Table 2:
Table 2 Instance Price of Each Scheme as well as Its Transfer Amount per Unit time
Resource Transfer
Instance Type
Scheme Instance Size Unit Price ($/h) Amount/Unit
Combinatorial Scheme
Time (Unit)
Large instance 0.345a+Pspot*(1-a) 15
Operating as Needed +
Scheme 1 Medium instance 0.190a+Pspot*(1-a) 8
Spot Goods Bidding
Small instance 0.105a+Pspot*(1-a) 3
Large instance 0.157a+Pspot*(1-a) 15
Reserving Customization
Scheme 2 Medium instance 0.093a+Pspot*(1-a) 8
+ Spot Goods Bidding
Small instance 0.058a+Pspot*(1-a) 3
This paper obtains the solution based on the data from Amazon EC2 as case data. The user budgets
of scheme 1 and scheme 2 needed by the user can be represented as:

f1 0.346x1 0.19x 2 0.105x 3

(9)
f2 0.157x1 0.093x 2 0.508x 3

Find the optimal solution according to the steps of the genetic algorithm above. The optimal
sequence of the solution is:
T=(1,1,0,1,0,0,0,0,0,0,0,0,0,0,0)
24
 The optimal distribution scheme obtained after decoding is:
x1=100, x2=0, x3=0
When a user chooses scheme 1 to purchase, e.g. a combination of the Operating as Needed Instance
and Spot Goods Bidding Instance, the instance size should be large. When a user chooses scheme 2 to
purchase, e.g. a combination of the Reserving Customization Instance and Spot Goods Bidding
Instance, the instance size should also be large.
Finally, apply the obtained value x to the time equation of each scheme, and the same result can be
obtained from scheme 1 and scheme 2 , which shows that when a user has a set budget, and wants to
minimize the time of processing the tasks, he/she can choose to purchase large instances. One can
choose any combinatorial scheme of the instance types, and both process the tasks in the same
amount of time.
Modeling of Polyinstance Combination Purchase Decision under Time Constraint Model
Formulation
When the capacity of a polyinstance combination purchase decision scheme has limitations, construct
a linear planning model that can minimize the users total purchase cost with time as its constraint
objective, e.g. minimum time required to complete the task, as follows:

m ni
minY1
i
( C ij )x i
1j 1
(10)

st.
m

i
ai
1
D (11)

ai min(Si1 ,Si 2 ,Si 3 ,...,Sini )(i 1,2,...,m) (12)

ai 0(i 1,2,...,m) (13)

The equation (10) represents minimum combination purchase cost; the equation (11) represents
that the total amount of data processed in each combination scheme is the users aggregate demand;
the equation (12) represents that the amount of data processed in a combination scheme is no greater
than its data-processing capacity; and the equation (13) represents the non-negative constraints of the
decision variables.
Numerical Experiment
Based on the aforementioned Amazon cases, the time scheme 1 and 2 needs to process tasks is:

x1 x x
f1 = + 2 + 3 (14)
15 8 3
x x x
f2 = 1 + 2 + 3 (15)
15 8 3

Find the optimal solution according to the steps of the genetic algorithm above. The optimal
sequence of the solution is:
T=(0,0,0,0,0,0,0,0,0,0, 1,1,0,1,0)
The optimal distribution scheme obtained after the decoding is:
x1=0, x2=0, x3=100
When a user chooses scheme 1 to purchase, e.g. the combination of the operating as needed
instance and spot goods bidding instance, the instance size should be small. When a user chooses
scheme 2 to purchase, e.g. the combination of the reserving customization instance and spot goods
bidding instance, the instance size should be large.

25
 Finally, apply the obtained value x to the budget equation of each scheme, and the required cost of
scheme 1 is greater than that of scheme 2. According to the objective of minimum cost, scheme 2 is
the optimal one, which means that when a user has a set amount of time to complete tasks, and wants
to achieve the objective of minimizing the budget, he/she can choose to purchase small instances and
choose the combination of the Reserving Customization Instance and Spot Goods Bidding Instance.
Modeling of Polyinstance Combination Purchase Decision under Budget and Time Constraints
Model Formulation
As we use the combinations of more than one instance type and each combination scheme has
different amounts of processed data, the average time is not obtained simply by adding the
data-processing time of each combination scheme together to calculate the mean. The proportion of
its data-processing amount to the total amount needed by the user should be taken into consideration.
As a result, this paper uses weighted average time to represent it, e.g. multiplying the proportion of
the data-processing amount of each combination scheme to the total amount needed by the user by the
data-processing time of this scheme. Now that model 3 takes both the objective of minimum budget
and of minimum time, model 3 is then a multi-objective planning model as shown below:

m ni
minY1 ( C ij )xi
i 1 j 1 (16)
ni
m
xi
minY2 ( tij ) m (17)
i 1
j 1

1
i
xi
s.t.
m

i
ai
1
D (18)

ai min(Si1 ,Si 2 ,Si 3 ,...,Sini )(i 1,2,...,m) (19)

ai 0(i 1,2,...,m) (20)

The equations represents that the weighted average time is the shortest.
Numerical Experiment
Based on the aforementioned Amazon cases, the time scheme 1 needs to process tasks is:

x1 x x
f1 = + 2 + 3 (21)
15 8 3

The budget required by a user of scheme 1 is:

f2 0.346x1 0.19x 2 0.105x 3 22)

The original proposition is equivalently turned into a condition-constrained problem:

min f1

min f2
Find the optimal solution according to the steps of the genetic algorithm above. The optimal
sequence of the solution is:
T=(0,0,0,0,0,1,1,0,1,0,0,0,0,0,0,)
The optimal distribution scheme obtained after the decoding is:
x1=0, x2=100, x3=0
26
 When a user chooses scheme 1 to purchase, e.g. the combination of the Operating as Needed
Instance and Spot Goods Bidding Instance, the instance size should be medium.
In the same manner, the cost required by the user of scheme 2

f2' 0.157x1 0.093x 2 0.508x 3 (23)

The original proposition is equivalently turned into a condition-constrained problem:

min f1

min f2
Find the optimal solution according to the steps of the genetic algorithm above. The optimal
sequence of the solution is:
T=(0,0,0,0,0,1,1,0,1,0,0,0,0,0,0,)
The optimal distribution scheme obtained after the decoding is:
x1=0, x2=100, x3=0
That is to say, when a user chooses scheme 2 to purchase, e.g. the combination of the Operating as
Needed Instance and Spot Goods Bidding Instance, the instance size should be medium.
Finally, apply the obtained value x to the budget equation of each scheme, and the required cost of
scheme 1 is greater than that of scheme 2. According to the objective of minimum cost, scheme 2 is
the optimal one (it takes the same amount of time for both schemes to process tasks when they choose
medium instances), which means that when a user has a set amount of time to complete tasks, and
wants to achieve the objective of minimizing the budget and time, he/she can choose to purchase
small instances and choose the combination of the Reserving Customization Instance and Spot Goods
Bidding Instance.

Conclusion
As business applications of cloud computing have broad prospects in the market, users can get to
know the market mechanism or system of the cloud computing resource trade better when purchasing
cloud resources, which is of great importance in their making purchase decisions, and is a hot spot
studied by scholars.
This paper starts with the mechanism of the cloud computing market trade, and goes on to discuss
the combination purchase schemes directed at different cloud instances based on constraints in terms
of the users cost and time. Minimizing cost and time is always the decision objective when
purchasing cloud resources, so this paper starts with the cost optimization and shortest service time,
and by combining the qualities of different instance types and sizes, constructs a single objective
constraint model by means of the genetic algorithm. Then it takes the twofold needs of the user into
consideration to construct a double objective constraint model based on time and cost, and in the
meantime, it achieves the objective of minimizing the users cost and service time.
This paper makes some achievements in terms of cost and time reduction, but still further
improvements need to be made on it. When calculating the total cost of each purchase scheme, we
suppose that the two types of instances in the two schemes are combined as per a certain ratio.
However, when the combination ratio of the two schemes are not equal to each other, that is, the
users instance combination ratio is random and arbitrary, such combination schemes are more
adaptable to the users diverse needs. The `follow-up studies can go on to study the selection of the
optimal scheme based on this supposition.

27
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28
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Analysis of Business Development and Entrepreneurship in Fujian

Province, China, with Recommendations for Policy Responses

Guo-chao LIN
Department of Business Administration, Fuzhou University of International Studies and Trade,
No.28, Yuhuan Road, Shouzhan New District, Changle, Fuzhou, Fujian, China

Keywords: Business development, Entrepreneurship, Government support, Innovation.

Abstract. As one of four coastal Special Economic Zones in China, business an entrepreneurship in
Fujian has its own characteristics, especially the small the medium enterprises. Fujian Government
has made great efforts to support the business and entrepreneurship development. Based on the policy
review and qualitative study, many preferential financial policies have been made to reduce the
difficulties of starting capital of business establishment. It is considered that these policies should be
more specific to SMEs and entrepreneurship to get more resources, including ventures capital,
innovation and business network. It should also focus on managerial aspects, including employee
training, marketing, product service and supply chain. Entrepreneurship development conditions
should be created to encourage new university graduates and unemployed people to be self-employed.
Transforming business ideas into business action is important in that process.

Introduction
In the past three decades, the business world was keen on the creative thinking of entrepreneurship.
The focus of business interest shifted from the large to small and medium enterprises (SMEs). Their
contribution to the economy growth became recognized, especially in China's economy. In 1978, the
state-owned sectors accounted for over 90% of the country's GDP, however, after the economic
reform, this had dropped to less than half in 2010. The entrepreneurship and small business have been
the key driver of the decrease, especially in the four coastal Special Economic Zones (SEZs) and 14
Open Cities. Xiamen, Fujian Province, which is one of the SEZs, has its own characteristics in small
business and entrepreneurship development. Those small firms are not only the economic growth
points and power, but also the channels to promote the regional economic development, employment
and innovation.
This paper is an attempt to analyze the business development and entrepreneurship in Fujian
Province, China, with recommendations to policy responses. The paper will start with an overview of
small business and entrepreneurship development status in Fujian Province. Secondly, it will go on to
analyze the business development strategy in Fujian Province. In this part, the analysis focus on five
parts: finance support, innovation support, market strategy, entrepreneurship and government service.
Thirdly, it will assess the main problems of business development in Fujian Province and give the
appropriate recommendations to the policy responses. Finally, a short review of the analysis of
business development and entrepreneurship in Fujian Province will be highlighted in the conclusion.

Overview of SMEs and Entrepreneurship Development in Fujian

Small and medium enterprise (SMEs) have played a significant role in economic growth in Fujian
Province. As can be seen from table 1, the output of SMEs in 2014 was nearly 6 times than large
companies and the increase percentages accounted 48.3% which was much more than the large
companies with 20.7% [1].

29
 Table 1. Different scales of company's output and increase percentages in Fujian, 2014.
Company size Output (billion RMB) Increase percentages %
Large companies 105.309 20.7
Medium companies 198.291 34.0
Small companies 431.795 14.3
Source: Fujian Statistics Yearbook [1], 2014
Statistics have shown that over 90% of the enterprises in Fujian are SMEs and 96.68% of them are
in the Secondary and Third Industry [1]. Those companies create over 50% of the province GDP and
provide about 75% employment opportunities for cities and towns.

Figure 1. The regional map of Fujian Province.

Most of the SMEs are located in the coastal of Fujian Province, such as Fuzhou, Xiamen,
Quanzhou and Zhangzhou (Figure.1). They account 72.25% of the whole SMEs in Fujian. The new
economic zone (FTZ) was established by Fujian Government in 2014. It enhanced the role of small
business and entrepreneurship in the region economic development. After the establishment of new
economic zone, 56% small firms deemed that there are more opportunities to expend the existing
market and 42% firms think the technology innovation ability of the firms was improved. 40% of
entrepreneurs had stronger willing to invest than before because they thought that the government
working efficiency has improved. The new policy also ameliorate the problems of market entry,
finance sources and taxation, which promotes more and more young people to be self-employed.

Business Development Strategy in Fujian

Finance Support
Every entrepreneur planning a new venture face the dilemma of where to find start-up capital. They
usually are not aware that variety of finance sources may be appropriate for the new ventures [2].
Capital shortage is the biggest problem for SMEs and young entrepreneurs. The government provided
many policies to solve the problem, for instance, low taxation, financial subsidies and aid loan.
Government also encourages direct financing to ease the capital pressures of SMEs. Government
finance support is another finance sources for small business, including financial investment and
financial subsidies. Firstly, the Fujian Government sets up SMEs development fund. The fund
supports SMEs' development in many areas, including entrepreneurship coaching, credit guarantee,
technology innovation, employee training, information consulting and exploiting international
market. Secondly, the government financial budget cover the special fund for SMEs. In 2014, 10
million RMB was given to support the SMEs' technology innovation and 26 million RMB was given
to support the poor areas business development. For example, Xiamen established 48 million RMB to
promote the local economy development. The following figure (Figure 2) illustrates the finance

30
source and the retained profits, personal investment, bank loan and government support are the main
finance source for SMEs and new entrepreneurs in Fujian.

Figure 2. Main finance sources in Fujian.

In terms of bank loan, it is the main external finance sources for small business in Fujian. In 2013,
31.48% capitals were from the bank loan and 84.72% SMEs preferred bank loan as main finance
source. Since 1998, the government has established many documents to protect and support the small
business and entrepreneurship development, such as giving priority to SMEs' bank loan and lower
interest rate. However, small firms do not get much benefit from the policies because the finance gap.
Figure 3 has shown the finance gap in bank loan and supply. Before 2008, the demand of bank loan for
small firms is ob based on the interest rate. However, the amount that Center Bank is willing to supply
is oa. Thus, there is a finance gap given by the distance ab. After 2008, the CPI and inflation index
keep increasing in China, the Center Bank increase the interest rate to limit the bank loan. It is
difficult for SMEs to be survived under the high capital costs environment. The government policies
should also pay more attention to the macroeconomic environment to provide a stable bank loan
environment for both SMEs and new entrepreneurs.

Figure 3. Demand and supply for bank credit.

Innovation Support
Fujian Government sets up SMEs innovation fund to support technology revolution. Porter stated in
the Competitive Advantage of Nations, companies achieve competitive advantage through acts of
innovation [3]. Technology innovation promotes products' structure restructuring though the whole
province. In order to support and promote innovation in SMEs, the government issued Fujian
Province SMEs Technology Innovation Fund Management Provisions. 30 million RMB are prepared
31
every year to innovation for SMEs and new entrepreneurs. Xiamen Entrepreneurship Centre get 2.7
million RMB free subsidize from the national innovation fund in 2014. Meanwhile, Fujian
Government gove supports to transform innovation activities into producing procedures, driving the
technology upgrade and industry transformation in local economic development. However,
innovation is not just for technology. Entrepreneurial firms in particular are often innovative in their
approach to marketing [4]. Government can put some of the funds into marketing, human resources
and organization learning to improve the competitiveness.
Market Strategy
Market is the basic element of business development and survival, but limited by many factors, such
as information shortage, weak market power, it is difficult for SMEs to develop new markets [5].
Therefore, Fujian Government built a market and business communication platform for SMEs to
expand existing market and develop new markets. Firstly, the government planned and organized
various business exhibitions and encouraged SMEs and entrepreneurs to participate in. For instance,
The Sixth Jinjiang Shoes Industry Exhibition and Eighth Taiwan Trade Fair. Secondly, the
government encouraged SMEs to invest abroad, participate in international trade and markets.
Government gives financial support in exporting, international exhibitions and training. Finally, the
government, cooperative organizations, trade association and industry organizations build up online
network to provide more market information quickly. However, according to a survey, only 34.7% of
SMEs and 29.33% of new entrepreneurs think that the government work efficiently in this area.
Although these events can provide market information for SMEs, the government neglects the
business culture, which is 'Guanxi' (relationship) based business, in developing a new market. It is
really important for government to help the SMEs to develop their 'Guanxi' network.
Entrepreneurship
From the world economic development experience, the failure rate of SMEs is very high. If the
government want to have a good development in region economy, entrepreneurship should be
encouraged. Relaxing restrictions is an important way to promote new business setting up. Thus,
government should develop appropriate policies to use the rich labor resources in China and exploit
ventures in entrepreneurship development. For example, reducing the small business entry
requirements and reducing the taxation payments and expenditure for new business. Quanzhou
decreased business registration capital to 40% for new entrepreneurs who want to establish their own
business by intangible assets investment, such as human capital and intellectual products. The
government have abolished 7,000 administration provisions to improve the new business approval
speed. Xiamen is the first one to set up management service center to reduce the business approval
time from one year to 45 days. However, these conditions cannot create an entrepreneur. Government
should also consider what can potential entrepreneurs' needs and wants. That means new business
conditions for entrepreneurs should be created by government to put into business action.

Recommendations
Finance sources cannot be limited in bank loan and government financial aid. Fujian province has
large quantity family firms. It is a good internal finance source for SMEs and entrepreneurs by
business cooperation with each other and expand their financial 'Guanxi' network. The Government
can establish regulations to protect the finance sourcing in family firms . Moreover, there is a large
number of oversea Chinese in Fujian. The government can encourage them and foreign investors to
invest in Fujian. Policies issued in this area can not only solve the capital shortage, but also can
develop the international markets.
SMEs who keep their autonomy and market power are those with the highest performance in terms
of employment [6]. Innovation cannot just consider technology, but also the innovative creations of
employees. Training system can be built up to enhance the competitiveness of employees. Employees

32
and managers' work skills and knowledge can be improved by providing training, internet source
sharing and employee exchange study. Higher education developed in university provides the skills
necessary to create innovation thinking [7]. SMEs and entrepreneurs can cooperate with university,
provide opportunities for graduates to have an internship and practice their thoughts into business
activities, especially in the marketing area.
'Guanxi' (relationship) based business culture is an important element in market development.
Culture differences directly impact on behavioral management practice in the business operation [8].
The existing business events are not just a information description, it is an opportunity for SMEs and
entrepreneurs to know their suppliers and customers better. Fujian Province is not the hinterland of
both Yangtze River delta and Pearl River delta, but they are contest metropolitan interlocking region
in Haixia west coastal economic zone. It is convenient for Fujian Province to communicate with
Yangtze River delta economic zone, Pearl River delta economic zone and Taiwan. The government
can cooperate with governments in those areas to create business 'Guanxi' network opportunities for
SMEs and entrepreneurs.

Conclusions
In conclusion, an attempt has been made to analyze the business development and entrepreneurship in
Fujian Province, China. Fujian Government has made great efforts to support the business and
entrepreneurship development. Many preferential financial policies have been made to reduce the
difficulties of starting capital of business establishment. Compared to large companies, it is considered
that these policies should be more specific to SMEs and entrepreneurship to get more finance source,
including joint ventures, leasing and trade credit. Moreover, funds support in technology is not enough
for business to improve competitiveness. Innovation is also an important focus point for managerial
aspects, including employee training, marketing, product service and supply chain. Finally, the
government should pay more attention to how to build and expand the 'Guanxi' network for SMEs.
Entrepreneurship development conditions should be created to encourage new university graduates and
unemployed people to be self-employed. Transforming business ideas into business action is important
in that process. All in all, if Fujian Government can keep these existing policies and adjust it as a
continuing policy, the business and entrepreneurship in Fujian will be more active and competitively.

References
[1] Fujian Provincial Bureau of Statistics. Fujian Statistical Yearbook, Fujian Statistic Press,
Fuzhou, 2014.
[2] Kuratko, D., Hodgetts, R. Entrepreneurship: Theory, Process, Practice. 7th ed, Thomson Higher
Education, Louiseville, 2007.
[3] Porter, M. The Competitive Advantage of Nations, Free Press, New York, 1990.
[4] Down, S. Enterprise, Entrepreneurship and Small Business, Sage, London, 2010.
[5] Burns, P. Entrepreneurship and Small Business: start-up, growth and maturity. 3rd ed, Palgrave
Macmillan, Hampshire, 2011.
[6] Trouv P. et al., The employment and training practices of SMEs. In Descy P., Tessaring M.,
(Eds.), Examination of research in five EU Member States, Office for Official Publications of the
European Communities, Luxembourg, 2000, pp. 91-232.
[7] O'Neill, N. Business Development in the Humber sub-region, North Sea Commission,
Skottenborg, Viborg, 2000.
[8] Inkpen, A. C. The Management of International Joint Ventures: An Organizational Learning
Perspective, Sage, London, 1995.

33
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Interaction of Chinas Knowledge-Intensive Business

Services and Manufacturing Upgrading
Hui FANG1, Tian ZHAO1,2,* and Yue-qian ZHANG3
1
College of International Trade and Economics, Shun'geng Compus,
Shandong University of Finance and Economics, No.40, Shun'geng Road,
Jinan City 250014, Shandong Province, P.R. China.
2
Language and Literature Department, Shandong Agriculture and Engineering University,
No.866, Nongganyuan Road, Jinan City 250100, Shandong Province, P.R. China.
3
Shandong Experimental High School, No 73,
Jingqi Road, Jinan City 250001,Shandong Province, P.R. China.
Email: 15805412568@163.com
*Corresponding author

Keywords: KIBS, Manufacturing upgrading, GVC.

Abstract: KIBS is a kind of advanced production factor which could increase the added value and
the productivity of manufacturing in the global value chain by industry association effect. This
paper empirically tests the dynamic relationship between KIBS and manufacturing upgrading by
VAR model. The results show that there is a long-term dynamic equilibrium and causal relationship
between KIBS and manufacturing. The positive effect of the former on the latter is obvious and
long-lasting.

Introduction
Since the reform and opening up, China has made considerable achievements in the manufacturing
sector. The MVA (Manufacturing Value Added) in China is only 1.5% of the world in 1980, but the
figure in 2010 is about 20%, the highest in the world. Due to lower labor cost, opening up and
investment policy, the manufacturing industry of our country is developing at a high speed in an
unprecedented situation. However, the model of Chinas manufacturing industry is underdeveloped.
From the perspective of international division of labor, China is confined in the lower links of GVC
(Global Value Chain) As mentioned in the 13th Five-Year Plan, high input, high consumption and
high emissions of extensive development is still the main mode of China's manufacturing industry.
"Big but not strong, made China's manufacturing industry facing a dilemma, and it's high time for
us carried on the transformation and upgrading manufacturing.
The global industry structure is showing a trend of transformation from industrial economy to
service economy since the 1980s. The proportion of service industry is expanding in the national
economy year by year, service industry accounts for nearly 50% of the GDP in recent years. The added
value of KIBS (Knowledge-Intensive Business Services) has increased from 2010.24 billion yuan in
2004 to 11035.49 billion yuan in 2014. The proportion of KIBS within the service industry has
increased from less than 30% by the early 2000s to nearly 40% nowadays, which shows that KIBS is
playing an increasingly important role in the national economy and within the tertiary industry.

Literature Review
In the study of the interaction between services and manufacturing, service is often regarded as
intermediate input of manufacturing. Krugman (1979) pointed out that imports of intermediate
goods contain more advanced technology, which could replace domestic inputs and generate higher
economic efficiency through technology spillover effect [1]. Broda, Greenfield and Weristein (2006)

34
studied the effect on TFP by imported intermediate products and named it as horizontal effect [2].
Grossman and Helpman (1993) studied the effect on input quality from new types of intermediates
and named it as vertical effects [3].
In the empirical research, services have a significantly positive effect on manufacturing. The
input-output analysis method is commonly used. Se-Hark Park (1989) analyzed the effect of
services on manufacturing on the basis of input-output table [4]. Other research subjects include
several European countries (Antonelli, 1998) [5], Japan and America (Carolina Casraldi, 1998) [6],
HongKong (Yam et al., 2010) [7] and Spain (Mas-verd, 2011) [8].
There has been a qualitative improvement on the research of KIBS from 1990s. The results show
that the relationship between KIBS and manufacturing is very close. Ciriaci (2015) considered that
strengthen the ties between KIBS and manufacturing can help enterprises to create new
achievements, have more patents of higher quality [9]. Miozzo and Grimshaw (2006) pointed out
KIBS has a strong ability of innovation and radiation in itself [10]. Knowledge spillovers may
increase the production capacity of manufacturing technology. By studying the spatial spillover
effects of manufacturing and services companies when they make location choices, Tur (2012)
found that high-tech manufacturing enterprises are more affected by spatial spillover effects of
services, compared to low-tech manufacturing enterprises [11].
Some scholars hold the opposite view that KIBS has less impact on the manufacturing industry.
Guerrieri (2005) found that KIBS has a significant effect on the technology-intensive manufacturing
and little effect on labor-intensive ones [12]. Macpherson (2008) confirmed the above views by
studying high knowledge and technology intensive services such as finance, communications,
commerce, etc [13].
Currently, most foreign studies are from the perspective of industrial economics, with the
background of industry association and input-output analysis as the main research method.
Domestic studies are primarily theory analysis, empirical tests are limited. Most of the existing
researches results are static, research on the specific effects of KIBS and manufacturing interaction
is lacking of further discussion.

Mechanism and Model

Global value chain means to connect raw materials, products, sales, service and so on globally in
order to realize the value of a commodity or service. From the GVC perspective, the
competitiveness of the value chain determines the strength of the enterprises and the industry. In the
case of production specialization and the deepening of intra-industry specialization, high
knowledge-intensive services have a profound impact on the added value and competitiveness of
the products. The move-up of manufacturing value chain mainly refers to the transformation from
the low-end production process in the middle to the high-end on both sides. Lower end of the
production process includes traditional manufacturing, assembly, etc. Higher end production links
include design and development, logistics, transportation, brand marketing, etc. Manufacturing
enterprises in our country participate in the international division mainly with low added value
production, which lies in the low end of the value chain with low marginal rate of profit.
With the increased input of intermediate services in the manufacturing process, KIBS can
promote the upgrading of manufacturing from two aspectsinternal and external.
In the first place, from the perspective of endogenous factors, the promoting effect of KIBS to
manufacturing is reflected in technology (both soft-technology and hard-technology) and human
capital (both labor and knowledge).
In the second place, from the perspective of exogenous factors, the promoting effect of KIBS to
manufacturing is reflected in FDI and international trade, which have technology spillover and
trade creation effects to host country. Furthermore, government policy is also an important factor.
Policy which is conductive to the development of services and manufacturing sectors plays a key
role in the promotion of industrial upgrading in the long run.
In the third place, internal and external factors are also influencing each other. Customers, peers,
universities and governments are all significant roles in the upgrading process. Customer demand
35
promotes the improvement of service quality. New technology and new development concept can
be learned in the communication with the peers. Universities and research institutions undertake the
important task of knowledge dissemination. Technological innovation and human capital
accumulation in the process are the key influencing factors of manufacturing upgrading.
Government and public policy organizations guiding role is also factor that cannot be ignored.
To sum up, under the action of endogenous and exogenous factors collectively, KIBS enterprises
provide intermediate service input to the further production of the manufacturing enterprises. In that
way, productivity increases, economies of scale effect is realized, the value of manufacturing
industry can be increased rapidly, the pace of industrial upgrading is accelerated.

Empirical Analysis
Research Idea and Data Description
The research idea of this paper is to study whether there is a dynamic relationship between KIBS
and manufacturing upgrading on the basis of analyzing their interactive mechanism through a VAR
model, and to explore the reasons behind it. Manufacturing upgrading includes many things, but it
will eventually be reflected in the manufacturing added value, profit, tax per capita and so on.
Because indicators of profits and taxes are susceptible to the tax system, distribution system,
method of depreciation and other factors, we choose MVA(manufacturing value added) to measure
the results of manufacturing upgrading, KIBS to measure the development of knowledge-intensive
business services sector. To logarithmic the existing time-series data will not change their character
and relationship, it can eliminate the influence of different variance, making the data more smoothly.
So we logarithmic the time-series data of MVA and KIBS, and record them as lnMVA and lnKIBS.
The data we use is mainly derived from China Statistical Yearbook, China industrial economy
statistical yearbook, China Statistics Yearbook on High Technology Industry (1992-2013).
Empirical Test. As there is no widely accepted economic theory about KIBS and manufacturing
upgrading, and some variables are endogenous, it is necessary to further examine the dynamic
relationship between them, although we have converted the relevant variables with 1992 as base
year in order to eliminate the influence of time and price and other factors.
Stationary Test. Table 1 shows that both lnMVA and lnKIBS contain a unit root, they are
non-reposeful time series, but their first difference reject the null hypothesis at 5% significance
level, so we accept the conclusion there is no unit root. That is to say, lnMVA and lnKIBS are all I(1)
variables, their linear combination is stable. Therefore, there may be cointegrating relationships
present among them in the system. This is explored in the next section.
Table 1. ADF test results.
Variable ADF Value 5% Level Critical Value Conclusion
lnMVA -3.05 -3.88 unstable
lnKIBS 1.29 -3.05 unstable
lnMVA -3.92 -3.65 stable
lnKIBS -2.85 -2.67 stable

Cointegration Test. AIC and SC criterion all tend to set up a lag model of order 1, the
cointegration test of lnMVA and lnKIBS in table 2 show that there is at least one cointegration
function, the variables have stable equilibrium relationship in the long-run which ensured there
wont be spurious regression to the time series.
Table2. Johansen test results.

Characteristic Root Trace Test

H0 characteristic value 5% Level Critical Value 5% Level Critical Value P-value
None * 0.613202 15.49471 15.49471 0.0455
At most 1 0.034840 3.841466 3.841466 0.4513

36
 VAR Model. We have got the parameter estimation of the VAR model with one-period lag, the
dynamic feedback mechanism between the two variables can be presented with the following VAR
model:

(1)

Among them, the coefficient of determination reached 0.98. The reciprocal of the module of all
roots are within the unit circle, demonstrating that the VAR model is stable, further analysis can be
carried out.
Granger Causality Test. Table 3 shows that lnKIBS and lnMVA are cause and effect of each
other, at least at a 5% significance level. That is to say, the development of KIBS is sure to cause
the upgrading of the manufacturing industry, while the manufacturing upgrading will lead to the
further development of KIBS. The relationship between the two is mutual promotion and
coordinated development
Table3. Granger causality test results.
Null hypothesis No. of Observations F-value P-value
LNKIBS does not Granger Cause LNMVA 21 5.56948 0.0333
LNMVA does not Granger Cause LNKIBS 21 13.6943 0.0024

Impulse response. Figure 1 presents the estimates of the response of the KIBS and
manufacturing respectively with a solid line, and the dashed lines are the corresponding two-thirds
confidence intervals.A shock to KIBS in the first period will bring a rapid response to the
manufacturing. The response will fall to a bottom after a slow rise in the 5th period. The influence
gradually tends to be stable after that and will be zero after 23 periods. It indicates that the impact
between KIBS and manufacturing is significant and long lasting.
Response to Cholesky One S.D. Innovations ?2 S.E.
Res pons e of LNMVA to LNMVA Res pons e of LNMVA to LNKIBS
.4 .4

.2 .2

.0 .0

-.2 -.2

-.4 -.4

-.6 -.6
5 10 15 20 25 30 5 10 15 20 25 30

Res pons e of LNKIBS to LNMVA Res pons e of LNKIBS to LNKIBS

.4 .4

.2 .2

.0 .0

-.2 -.2

-.4 -.4

-.6 -.6
5 10 15 20 25 30 5 10 15 20 25 30

Figure 1. Generalized Impulse Responses of MVA to KIBS.

Conclusions
To sum up, due to the above theoretical analysis and quantitative test, we can come to the
conclusion that there does exist long-term equilibrium of the dynamic relationship between KIBS
and manufacturing upgrading in China, the former has a significant impact on the latter and will
continue to have a positive impact on the latter in a long time.

37
Acknowledgements
This research was financially supported by the National Social Science Foundation (13FGL002);
Social Science Planning Project of Shandong Province (15BJJJ04).

References
[1] P. Krugman, Increasing returns, monopolistic competition and international trade, Journal of
International Economics.9(1979)469-479.
[2] C. Broda, J. Greenfield, D. Weristein, From groundnuts to globalization: A structural
estimate of trade and growth, NBER Working Paper, No. 12512(2006).
[3] G. Grossman, E. Helpman, Innovation and growth in the world economy, MIT Press,
Cambridge,1993.
[4] S.H. Park, Linkages between industry and services and their implications for urban
employment generation in developing countries, Journal of Development
Economics.30(1989)359-379.
[5] C. Antonelli, Localized technological change, new information technology and the
knowledge-based economy: the European evidence, Journal of Evolutionary
Economics.8(1998)177-198.
[6] C. Casraldi, The relative weight of manufacturing and services in Europe: An innovation
perspective, Technological Forecasting and Social Change. 76(1998)709-722.
[7] C.M.R. Yam, W. Lo, P.Y.E. Tang, A.K.W. Lau, Analysis of sources of innovation,
technological innovation capabilities, and performance: An empirical study of Hong Kong
manufacturing industries, Research Policy. 40(2011)391-402.
[8] F. Mas-Verd, How much does KIBS contribute to the generation and diffusion of
innovation, Service Business. 195(2011)195-212.
[9] D. a. Ciriaci, Do KIBS make manufacturing more innovative? An empirical investigation of
four European countries, Technological Forecasting and Social Change. 95(2015)135-151.
[10] M. Miozzo, D Grimshaw, Knowledge intensive business services: Organizational forms and
national institutions, Edward Elgar Publishing Ltd, Cheltenham, 2006.
[11] A. Mas-Tur, The level of innovation among young innovative companies: The impact of
knowledge-intensive services use, firm characteristics and the entrepreneur attributes, Service
Business. 8(2014)51-63.
[12] P. Guerrieri, V. Meliciani, Technology and international competitiveness: The
interdependence between manufacturing and producer services, Structural Change and Economic
Dynamics. 16(2005)489-502.
[13] A. Macpherson, Producer service linkages and industrial innovation: Results of a
twelve-year tracking study of New York State manufacturers, Growth and Change. 39(2008)1-23.

38
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Prediction of Secondary Exponential Smoothing of the

Total GDP of Mongolia

Bo LIU1, Wei-guo LI1, Xin-tao WANG1, Hui-long JIN1, Xiao-yang CHEN2,

Xiao-ting LI2 and Yue-hu LIU2
1
Mengdong Electric Power Company, Huhehaote
2
North China Electric Power University, Beijing

Keywords: The secondary exponential smoothing method, Total GDP, Predicted value, Actual
value, The exponential smoothing method.

Abstract. Recent years, the trend of total GDP in Mongolia has been increasing fast, the total GDP
has been 1.77 trillion yuan in 2014, which reflects the level of economic development and economic
strength to a certain extent. In addition, it is an important role to the analysis of economic growth and
inflation. It is a good method to make a precise economic development plan to predict the total GDP
in 2016. Therefore, the total GDP of Mongolia prediction research is of great economic and practical
significance. The prediction method includes gray model GM (1, 1) method, a geometric growth,
exponential smoothing method that have different characteristics. For example, the advantage of
exponential smoothing method is that it can use a special weighted average method for data to achieve
the purpose of prediction [1]. Using exponential smoothing method do not have to quantitative study
of the inner factor and their interconnections of complex systems, but only need to find useful
information from the time itself. The basic principle is to give greater weight for older data and give
less weight for the earlier data. In this situation, the earlier data can have less affect to prediction
results and the recent data can have greater effect to the prediction results. It is full of strong
rationality and science and suitable for short- term forecasting. In this essay, based on data from 2004
to 2014 and using the secondary exponential smoothing method to predict GDP for Mongolia in 2016.

The Advantage of Exponential Smoothing

The exponential smoothing method has many advantages. At first, the lower cost of exponential
smoothing can be calculated in an ordinary computer and operated easily. Secondly, it is full of
adaptability, strong scientific and rationality, and can be used in a wide range which can be applied to
almost any time series prediction and widely used in the economy, natural science and other fields.
Next, for example, the principle is that it prefers recent data to earlier data, which is a good method to
make the prediction more accurate [2]. The data processing need to use all of the historical data, and
through using recent data instead of earlier data can decrease the impact of outliers. Finally, it can
have a better result to save a lot of time, and it can calculate the future prediction value by using the
recent actual data and the corresponding prediction which can save the time cost of data calculating
and data processing.

The Principle of Exponential Smoothing

American scholar Brown first proposed exponential smoothing which also known as an exponentially
weighted average method in 1959. This method is based on the chronological order of historical
research and then predicts which is better than the moving average method. The moving average
forecast is not fully use all the time series data and the number of data involved in computing with
equal weight is lack of rationality and scientific. For example, the process of exponential smoothing
is clear, easy to calculate and can be widely used to predict in investment, economic and military

39
aspects [3]. It includes an exponential smoothing, secondary exponential smoothing and it needs to
analyze the trend of time series to determine in the actual prediction.
The Model of a Exponential Smoothing
A exponential smoothing model is widely used in the stationary data prediction. It assumes that the
time sequence y1, y2, y3, , yn , using the current observation xt and prediction value yt
weighted average as the next period prediction value, and y t + 1 as the first value, and the first
observation value x1 as the first prediction value y1 , in this situation the formula of exponential
smoothing is in Eq. (1) and Eq. (2).
(1 )
s t = y t + (1 - )s (t 1- 1) (1)

The formula of prediction is in Eq. (2).

(2)

s (t1 )
and s (t1-1) refer to the t and t-1 period of exponential smoothing value, is the smoothing
factor(0<<1), xt refers to the actual observation value in the t period, yt and yt + 1 refer to the
prediction value of the period of t and t+1 respectively.
The Prediction Model of Secondary Exponential Smoothing
The secondary exponential smoothing is based on the exponential smoothing to do it again, and the
prediction model is applicable to the case of time series which in the linear trend, the formula is in Eq.
(3) and Eq. (4).

s (t 2 ) = s (t1 ) + (1 - )s (t 2-1) (3)

The linear prediction model is:

y t+ k = a t + b tk (4)

The linear model factor is:

a t = 2 s (t 1 ) - s (t 2 ) (5)

b t =
1-
(s ( ) - s ( ) )
t
1
t
2
(6)

s(t2 ) and s(t2-1) refer to the t and t-1 period of secondary exponential smoothing value, and y t + k refers to
the prediction value in the k period.

Determining the Initial Smooth Value of the Exponential Smoothing Method

There are two methods to determine the initial smooth value by using exponential smoothing method
to establish trend prediction model. The first one is y 1 = x 1 , the predicted value will have a large
impact for the second phase and even further predicted value. However, for example, with the
increase of t, the impact will be gradually reduced, but it also can guarantee high impact first phase for
the second phase to improve the accuracy of prediction, and this method is more commonly used [4].
The next one is that in the long time series and is large, and the effect of the size of the initial value

40
of prediction is very small, according to the general experience y = x + x 3 + x , the initial prediction
1
1 2 3

value cannot have large impact for the second and even further prediction value. In this essay, it will
use the first method.

Choosing Exponential Factor

It is a significant factor to choose exponential factor in the exponential smoothing method. It
represents the reaction rate for the change of time series and the ability of reducing random errors
while determining prediction. represents the impact ratio of the t period actual data in the period of
yt +1 . Therefore, the impact ratio will be larger when the greater value of . The principle of choosing
is the value between 0 and 1, and the predicted value and the time sequence between the observed
mean square deviation S and the average absolute error is minimized. In practice, through the gradual
test method to make the mean squared deviations (represented by MSE) minimum and to determine
n 2

. MSE = n1 (x - y ) , n represents the number of (x - y ) . It also can judge by experience:

t =1
i i i i
2

When the time sequence is more stable trend level, it should select the smaller generally ranging
between 0.05 and 0.2, so that the observed value in actuality can pretty close to the exponential
smoothing right size, in this situation, it can have a similar effect on the predicted results for each
predicted value.
When the time sequence is volatile and it does not have a large change in the long term, it can
choose a larger ranging between 0.1 and 0.4.
When the time sequence is volatile and there is a large change in the long term which shows
significant upward or downward trend, it is desirable to select a larger value of ranging between
0.6 and 0.8. It can improve the sensitive of forecasting model and adapt quickly to fluctuations in the
data.
When the time series data is the type of increasing or decreasing obviously, it should choose the
between 0.6 and 1.

The GDP Application of Second Exponential in Mongolia

Choosing Data
Table 1. GDP from 2004 to 2014 in Mongolia.
year GDP(hundred million)
2004 3041.07
2005 3895.55
2006 4841.82
2007 6091.12
2008 8496.20
2009 9740.25
2010 11672.00
2011 14359.88
2012 15880.58
2013 16916.50
2014 17770.19

The data comes from GDP statistics in the China Statistical Yearbook of gross regional production,
for data selection, the standard data is based on the final determine, for example, the data from 2004
to 2008 in the presence of the statistical yearbook 2010, and the total GDP in the 2008 is 776.16
billion yuan, however, the total GDP in the 2008 is 849.62 billion yuan on the statistical yearbook
2013 [5]. In this situation, this paper will use 849.62 billion yuan in the 2008 which using the latest
updated data, and so forth, the data is in the table1.

41
Calculating by Using Excel
According to observe, it can be found that the time series is a linearly increasing trend and use
secondary exponential smoothing method to predict. is determined by step tested and to find the
corresponding predicted values. At first, selecting the initial value, and the initial value of this
prediction is y1=x1=3041.07. Next, selecting the smoothing factor . According to the relative
essay, for example, when the development trend of type of data in the time series is upward or
downward, should choose the large one ranging between 0.6 and 1 [6]. Based on the above
principle, it can choose =0.6, 0.65, 0.7, 0.75, 0.8, 0.85, 0.9, 0.95 to have a secondary exponential
smoothing prediction and the result in the table 2.
n
x i -y
Furthermore, the calculation process of M A B S
x i
i

is in the table 3. Through
A P E =
1 100%
n
table 2, it can be found that in the secondary exponential smoothing prediction the difference of result
accuracy is vary greatly by using different . With the smoothing coefficient value increases, for
example, the result can trend to the value of time series and the error is getting smaller and smaller [7].
It shows that as the value of increases, the accuracy of predicted result trends to increase. When the
is 0.95, the predicted error is minimized, so the excellent is 0.95 and the secondary exponential
smoothing predicted result can be found in the table 4.
Table 2. The exponential smoothing prediction of different .
GDP
(one
Year The exponential smoothing prediction of different
hundred
million)
a 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95
2004 3041.07 3041.07 3041.07 3041.07 3041.07 3041.07 3041.07 3041.07 3041.07
2005 3895.55 3553.76 3596.48 3639.21 3681.93 3724.65 3767.38 3810.10 3852.83
2006 4841.82 4326.60 4405.95 4481.04 4551.85 4618.39 4680.65 4738.65 4792.37
2007 6091.12 5385.31 5501.31 5608.09 5706.30 5796.57 5879.55 5955.87 6026.18
2008 8496.2 7251.84 7447.99 7629.77 7798.73 7956.27 8103.70 8242.17 8372.70
2009 9740.25 8744.89 8937.96 9107.11 9254.87 9383.45 9494.77 9590.44 9671.87
2010 11672 10501.16 10715.09 10902.53 11067.72 11214.29 11345.42 11463.84 11571.99
2011 14359.88 12816.39 13084.20 13322.68 13536.84 13730.76 13907.71 14070.28 14220.49
2012 15880.58 14654.90 14901.85 15113.21 15294.64 15450.62 15584.65 15699.55 15797.58
2013 16916.5 16011.86 16211.37 16375.51 16511.04 16623.32 16716.72 16794.80 16860.55
2014 17770.19 17066.86 17224.60 17351.79 17455.40 17540.82 17612.17 17672.65 17724.71
MAPE 0.0937 0.0774 0.0629 0.0497 0.0379 0.0271 0.0173 0.0083
Table 3. The calculation process of MAPE.

The calculation process of MAPE

0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95
0.087739 0.076772 0.065804 0.054837 0.04387 0.032902 0.021935 0.010967
0.106411 0.090022 0.074514 0.059889 0.046147 0.033286 0.021308 0.010213
0.115875 0.096831 0.0793 0.063177 0.048357 0.034734 0.022204 0.010661
0.14646 0.123374 0.101979 0.082093 0.063549 0.046197 0.0299 0.014536
0.102191 0.082369 0.065003 0.049833 0.036631 0.025203 0.01538 0.00702
0.100312 0.081984 0.065924 0.051772 0.039214 0.02798 0.017834 0.008568
0.107486 0.088836 0.072229 0.057315 0.043811 0.031488 0.020168 0.009707
0.077181 0.061631 0.048321 0.036896 0.027075 0.018635 0.011399 0.005227
0.053477 0.041683 0.03198 0.023969 0.017331 0.01181 0.007194 0.003307
0.039579 0.030702 0.023545 0.017714 0.012908 0.008892 0.005489 0.002559
0.093671 0.07742 0.06286 0.049749 0.037889 0.027113 0.017281 0.008277

42
 Table 4. The secondary exponential smoothing =0.95.
The secondary exponential smoothing =0.95
GDP(one yt(one
ABS(xt-y ABS(xt-y
Year hundred St(1) St(2) at bt hundred
t) t)/xt
million) million)
2004 3041.07 3041.07 3041.07
2005 3895.55 3852.83 3812.24 3893.41 771.17
2006 4841.82 4792.37 4743.36 4841.38 931.13 4664.58 177.24 0.0366
1218.6
2007 6091.12 6026.18 5962.04 6090.32 5772.50 318.62 0.0523
8
2290.1
2008 8496.2 8372.70 8252.17 8493.23 7309.00 1187.20 0.1397
2
1348.7
2009 9740.25 9671.87 9600.89 9742.86 10783.36 1043.11 0.1071
2
1872.5
2010 11672 11571.99 11473.44 11670.55 11091.58 580.42 0.0497
5
2609.7
2011 14359.88 14220.49 14083.13 14357.84 13543.10 816.78 0.0569
0
1628.7
2012 15880.58 15797.58 15711.85 15883.30 16967.53 1086.95 0.0684
2
1091.2
2013 16916.5 16860.55 16803.12 16917.99 17512.02 595.52 0.0352
7
2014 17770.19 17724.71 17678.63 17770.79 875.51 18009.25 239.06 0.0135
MAPE 0.0622
RMSE 762.14

The Comparison of the Actual Value and the Predicted Value

According to the figure 1 and 2, it can be found that the predicted value are mostly same as the actual
value which represents the prediction is full of reliable.
18000.00
17000.00
16000.00
15000.00
14000.00
13000.00
12000.00
11000.00
10000.00
9000.00 the exponential
8000.00 smoothing value
7000.00 of GPD in
6000.00 Mongolia
5000.00 the actual GDP in
4000.00 Mongolia
3000.00
2000.00
1000.00
0.00
40 50 60 70 80 9
0 0 1 2 3 4
20 20 20 20 20 0 1
2 0
2
1
0
2
1
0
2
1
0
2
1
0
2

Figure 1. The comparison of actual GDP and the value of exponential smoothing.

43
 18000.00
17000.00
16000.00
15000.00
14000.00
13000.00
12000.00
11000.00
10000.00 the secondary
9000.00 exponential
8000.00 smoothing of GDP
7000.00 in Mongolia
6000.00 the actual GDP in
5000.00 Mongolia
4000.00
3000.00
2000.00
1000.00
0.00
40 50 60 70 80 9
0 0
1 1
1 2
1 3
1 4
1
02 02 02 02 02 0
2 0
2 0
2 0
2 0
2 0
2
Figure 2. The comparison of actual GDP and the value of secondary exponential smoothing.

Predicting GDP of Mongolia in 2016

When the is 0.95, the average percentage error of time series forecasting (MAPE) is 6.22% which
n

(x
2
i -y i )
can meet the requirement. The square root of the mean square error is R M SE = 1
n
= 7 6 2 .1 4 ,

for example, based on the secondary exponential smoothing prediction model y t + k = a t + b t k , it can
be found that y 2014+ k = 17770.79 + 875.51k , and the time predicted value in the period of t+k is
y t + k = a t + b t k , and the interval of predicted value in the period of t+k is [yt+k -t*RMSE, yt+k+
t*RMSE] [8].
In this situation, the predicted GDP of Mongolia in 2016 is
y 2016 = 17770.79 + 875.51 2 = 19521.81 . When t=1, the confidence interval of predicted GDP of
Mongolia in 2016 is [18759.67, 20283.95]. When t=2, the confidence interval of predicted GDP of
Mongolia in 2016 is [17997.53, 21046.09]. When t=3, the confidence interval of predicted GDP of
Mongolia in 2016 is [17235.39, 21808.23].

Conclusions
The predicted values from 2004 to 2014 are almost same as the actual consumption values, which
indicating that predicting the total GDP of Mongolia by using secondary exponential smoothing
method is accurate and reliable and full of a certain reference value. The predicted GDP of Mongolia
in 2016 can be used to guide its economic development plan.
When predicting by using exponential smoothing method, it needs to analyze the trend of time
series in order to the number of exponential smoothing and the suitable initial smoothing value. When
the time series have an obvious linear upward or downward trend, using secondary exponential
smoothing method to predict is a good way which can fit well with the actual value. For example,
smoothing coefficient directly influences the level of accuracy of the prediction effect [9]. Usually,
the minimum error can be selected by experience to calculate. When the time series are not
complicated, for example, in order to improve the accuracy of prediction, the smoothing coefficient
may choose the larger one [10]. If becomes larger than before, the information contained in the
prediction time series may decrease, in this situation, the size value of the smoothing coefficient
should be in the range of experience and also need to consider the degree of fluctuation and the trend.
In the actual forecast, as long as the time series is not complicated, the value only needs to choose the
large one in the allowable experience range.

44
Acknowledgement
In the process of writing essay, I would especially thank my colleagues and leaders who gave me care
and guidance. Whether it is in the process of writing my essay in work or daily life, leaders and
colleagues have given my selfless love and help, so I quickly growing up in my working life. To
express sincere thanks and deep gratitude. Furthermore, many students also got valuable advice to me
and I also need to thank them. Finally, I will thank experts who will review this article and make
valuable suggestions.

References
[1]. Fan Ruiheng, Ren Lixiu, The application of ARIMA and exponential smoothing method in the
prediction of GDP of Jiangsu, J. Jiangxi Agricultural Sciences, 2011, 23(2):187-189.
[2]. Chen Rijin. The comparison of exponential smoothing method and time series method in the
prediction of consumption, J. Statistics & Information Forum. 2004, 19(4).
[3]. Liu Nengzu, Chen Jingjiang, Liu Kaishan. Prediction Chongqing natural gas demand exponential
smoothing study, Xiangtan Normal University (Natural Science), 2009, 31 (1).
[4]. Tang Yansen, exponential smoothing prediction fomular and smoothing coefficient, J. Statistics
& Information Forum. 1998(1).
[5]. Zhu Dong, Hu Xiaohua, Yang Shuaiguo. The application of secondary exponential smoothing in
the CCI model, J, Hainan Normal University: Natural Science Edition, 2010 (2).
[6]. Mrinalini shah.2007. Fuzzy Time Series: A Realistic Method to Forecast Gross Domestic Capital
of India. Advances in Soft Computing, 40:255-264.
[7]. Phillips.1987. Time series regression with a unit root.Econometrica,55(2):277-301.
[8]. Kwiatkowski Det al. 1992. Testing the null hypothesis of stationarity against the alternative
of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics,
54(1-3):159-178.
[9]. Kuan C.M and White H. 1994. Artificial Neural Networks: AN econometric Perspective (with
discussion). Economertic Reviews, 13:l-143.
[10]. Kuan C.M and White H. 1994.Artificial Neural Networks: AN econometric Perspective (with
discussion). Economertic Reviews, 13:l-143.

45
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Comparative Advantage of Export Commodities in

Taiwan During 20002014
Chun-peng ZHANGa,*, Rong KANG
School of Economics and Management, Northwest University, XIAN, China
a
Email: 15902925706@163.com
*Corresponding author

Keywords: Taiwan, Comparative advantage, Export commodities.

Abstract. Taiwan is difficult to further expand the scope of its export market in recent years. This
paper made an empirical analysis about the comparative advantage of the export commodities in
Taiwan during 2000-2014. The comparative advantages were analyzed by using the revealed
comparative advantage index, trade competitiveness index and intra-industry trade index. And the
results show as follows: there are comparative disadvantages on the export trade of primary
products in Taiwan, and the disadvantages are gradually deteriorating. Industrial manufactured
goods generally get rid of the comparative disadvantage, but they are still at a very weak advantage
on the international competition. In Taiwan the overall comparative advantage of exports is not
obvious. In order to further expand the exports, Taiwan needs to increase capital investment,
enhance the core R&D capabilities and expand commodity trading network.

Introduction
From 1960s to 1990s, the advantageous geographical position of Taiwan promotes the rapid
development of economic and export trade. Then Taiwan becomes one of the four tigers in Asia. In
recent years, Facing the dual pressures from high technology market and low tech market, Taiwan's
export market is difficult to be further expanded and urgently needs to transfer the export.
Generally speaking, in the past 15 years, exports and total export-import volume in Taiwan have
shown an upward trend except for a few years. Total exports of taiwan amounts to $1220.8 billion
in 1997. In comparison with 1997, exports rise 80% and exceed $200 billion in 2006. At the same
year, net exports exceed $20 billion. From 2012 to 2014, exports are more than $300 billion, and in
2014 it amounts to $12 billion. With the continuous expansion of export trade, the share of exports
in GDP even has reached 60% in some years.
In the past 20 years, machinery and transportation equipments are the main export commodities
in Taiwan. And they amount to $69.5 billion in 2011, and account for 56.54% of total exports.
From 2001 to 2013, the proportion is downward. But it rebounds to 52.68% in 2014. Manufactured
goods classified by raw materials are the second largest category of export commodities in this area.
Manufactured goods accounted for 23.2% of the total export in 1995, in 2014 the proportion is
15.28%. From 1995 to 2014 the proportion of chemical products gradually increases, while the
proportion of miscellaneous products gradually decreases.

Methods
Index selection
This paper used three indexes to evaluate the comparative advantage of export products in Taiwan.
These indexes are the revealed comparative advantage (RCA), trade competitiveness index (TC)
and Intra-industry trade index (IIT).
RCA is a radio of the share of a product export machinery and transport equipment exports in the
total exports.

RCAij = ( Xij / Xj ) / ( Xiw / Xw) (1)

46
 In (1) j is the name of a country or region. i is the name of a product. Xij means the exports of i
in j . Xj means the exports of all products in j . Xiw means the exports of i in the world. Xw means
the exports of all products in the world. Generally speaking, if RCA > 2.5, it means this product has
a very strong export competitiveness; if 1.25 < RCA < 2.5, it means this product has a bit strong
export competitiveness; if RCA < 0.8, it means this product has a weak export competitiveness.
TC is a radio of net export in the total export-import volume. It reflects the relative
competitiveness of products.

TCit = ( Xit Mit ) / ( Xit + Mit ) (2)

In (2) Xit means the exports of the product in a country (region) at a certain time. Mit means the
imports of the product in a country (region) at a certain time. Generally speaking, if TC>0, the
production efficiency is higher than the international level. And when TC is larger,the competitive
advantage is stronger. On the contrary, if TC<0, the production efficiency is lower than the
international level, and this product is at a competitive disadvantage.
Crubel, H.C. and Lloyd Lloyd, P.T. put forward IIT index in 1975. The formula is as follows:

IITi = 1 (| Xi Mi |) / ( Xi + Mi ) = 1 | TCi | (3)

In (3) , Xi means the exports of the product in a country (region) at a certain time. Mi means the
imports of the product in a country (region) at a certain time. IIT index is between 0 and 1. If IIT is
closer to 0, inter-industry trade plays a more important role in trade of one product. If IIT is closer
to 1, intra-industry trade plays a more important role in the trade of one product.
Data Categories
According to the Standard International Trade (SITC), this article selected nine kinds of
goods(SITC0, SITC1, SITC2, SITC3, SITC4, SITC5, SITC6, SITC7 and SITC8) to carry on the
comparative advantage analysis research. Among them, SITC0-4 are primary products, the author
put them into natural resource intensive products; SITC5-8 are manufactured goods, SITC6 and
SITC8 are regarded as labor intensive products, while SITC5 and SITC7 are regarded as capital and
technology intensive products. And all the data are from the UNCATD database.
Empirical Analysis
The author calculated the RCA index of export commodities in Taiwan from 2000 to 2014, the
results are shown in table 1. In the past 15 years, the RCA of SITC0 shows a downward trend. At
the sanme time, the indexes of SITC1,SITC3 and SITC4 are very low. Although in the first five
categories the RCA index of SITC2 is the highest one, the value is not more than 0.55. In addition,
the declining RCA indexes of SITC0, SITC1, SITC2, SITC3 and SITC4 show that the comparative
disadvantage of primary products in Taiwan is still worse, and natural resource intensive products
export competitiveness is very weak. In terms of SITC5, the RCA has increased from 0.7 to 1.2
during 2000-2013, obviously it means that this commodity is gradually showing export
competitiveness. For SITC7, the RCA index has been higher than 1.25 since the past 15 years. In
2014 it reaches the maximum value 1.58. So the trade competitiveness has been further
strengthened. According to the indexes of SITC7 and SITC5, we can know Taiwans technical level
is advanced, as a result capital and technology intensive products has strong competitiveness.
Whats more, the changing trends of SITC8 and SITC6 show that the competition of labor intensive
products in Taiwan is not strong. In summary, industrial products has a certain export
competitiveness in Taiwan, and primary products are at a competitive disadvantage.

47
 Table 1. RCA index of export commodities in Taiwan.
SITC0 SITC1 SITC2 SITC3 SITC4 SITC5 SITC6 SITC7 SITC8
2000 0.22 0.05 0.44 0.05 0.07 0.70 1.42 1.43 0.99
2001 0.23 0.06 0.54 0.06 0.08 0.74 1.45 1.40 0.96
2002 0.23 0.06 0.51 0.06 0.06 0.74 1.41 1.41 0.93
2003 0.22 0.05 0.45 0.05 0.05 0.79 1.38 1.39 1.07
2004 0.22 0.05 0.36 0.04 0.04 0.87 1.32 1.36 1.17
2005 0.21 0.05 0.33 0.03 0.04 0.99 1.30 1.33 1.23
2006 0.16 0.04 0.26 0.02 0.04 0.97 1.20 1.37 1.32
2007 0.15 0.04 0.23 0.02 0.03 1.10 1.19 1.36 1.31
2008 0.17 0.04 0.22 0.02 0.02 1.17 1.22 1.39 1.37
2009 0.15 0.04 0.28 0.03 0.03 1.11 1.25 1.44 1.19
2010 0.15 0.03 0.18 0.02 0.02 1.17 1.18 1.46 1.30
2011 0.17 0.03 0.15 0.01 0.02 1.22 1.23 1.52 1.25
2012 0.19 0.03 0.16 0.01 0.02 1.19 1.28 1.50 1.22
2013 0.15 0.03 0.17 0.01 0.02 1.21 1.21 1.51 1.13
2014 0.15 0.03 0.17 0.02 0.02 1.12 1.22 1.58 1.05
As shown in table 2, the export commodities RCA index of some countries or regions in 2013 are
calculated. The SITC0 RCA index in Canada and India are greater than 1.25, and they have a strong
export competitiveness. Among the comparative advantage index of SITC2, SITC3 and SITC4,
Canada are in the first place, so the international competitiveness are the strongest. In the first four
categories of goods, the RCA index of Chinese mainland, Hongkong, Taiwan, are almost at the
bottom. Taiwan shows a significant disadvantage in the esports of SITC3, SITC1, SITC4, so the
export competitiveness lags behind other countries or regions. UK has a strong comparative
advantage in the SITC5 category of goods, and then USA and Taiwan area follows. For India, the
SITC6 commodity has very strong competitiveness, and the RCA index is far higher than the
second one(Chinese mainland) and the third one(Taiwan, China). South Korea, Hongkong region
and Taiwan all have a strong export competitiveness in the competition of SITC7 products, but they
are less competitive than Japan.
Table 2. The RCA index of nine commodities in different countries or regions in 2013.
SITC0 SITC1 SITC2 SITC3 SITC4 SITC5 SITC6 SITC7 SITC8
Chinese Mainland 0.42 0.15 0.16 0.08 0.05 0.51 1.34 1.46 2.38
Hongkong, China 0.18 0.47 0.16 0.01 0.02 0.33 0.71 1.69 1.52
Taiwan, China 0.15 0.03 0.17 0.01 0.02 1.21 1.21 1.51 1.13
Canada 1.31 0.33 2.23 1.46 1.34 0.78 0.92 0.79 0.39
Singapore 0.23 1.15 0.17 0.97 0.14 1.14 0.32 1.44 0.78
Korea 0.15 0.29 0.30 0.54 0.02 1.11 1.05 1.70 0.77
USA 1.13 0.58 1.37 0.52 0 .42 1.24 0.75 1.05 0.90
Japan 0.09 0.11 0.43 0.13 0.04 0.99 1.08 1.80 0.71
India 1.66 0.50 1.19 1.15 0.62 1.10 2.02 0.43 1.05
UK 0.56 2.64 0.47 0.63 0.26 1.25 0.74 0.87 0.95
The trade competitiveness index of export commodities in Taiwan during 2000-2014 was
calculated, the results are shown in table 3. From the begaining of 20th century, the TC index of
primary products on SITC0, SITC1, SITC2, SITC3 and SITC4 are negative. It indicats that primary
products in Taiwan are comparative disadvantage, and the index presents a slow deterioration trend,
especially on SITC2. For industrial manufactured goods, TC index on SITC5 is negative in 2000,
and later rose to 0. At the same time, comparative disadvantage turns into a neutral advantage. The
TC index on SITC6, SITC7 and SITC8 are greater than 0, but the maximum value is not more than
0.4. As a result, industrial manufactured goods have a certain comparative advantage, but the
competitiveness is still very weak. So the export of primary products in Taiwan is at a disadvantage,
and the manufactured products are in a weak comparative advantage.

48
 Table 3. The trade competitiveness index of the nine commodities in Taiwan (TC).
SITC0 SITC1 SITC2 SITC3 SITC4 SITC5 SITC6 SITC7 SITC8
2000 -0.33 -0.86 -0.44 -0.89 -0.71 -0.25 0.30 0.10 0.14
2001 -0.32 -0.85 -0.37 -0.88 -0.65 -0.16 0.37 0.15 0.19
2002 -0.32 -0.83 -0.41 -0.87 -0.71 -0.15 0.34 0.16 0.20
2003 -0.34 -0.86 -0.46 -0.90 -0.75 -0.14 0.29 0.16 0.20
2004 -0.34 -0.86 -0.56 -0.93 -0.79 -0.12 0.18 0.12 0.15
2005 -0.37 -0.88 -0.57 -0.95 -0.78 -0.07 0.19 0.12 0.22
2006 -0.44 -0.88 -0.63 -0.96 -0.76 -0.08 0.17 0.20 0.27
2007 -0.48 -0.88 -0.70 -0.96 -0.83 0.00 0.18 0.22 0.27
2008 -0.47 -0.89 -0.73 -0.98 -0.87 0.01 0.14 0.23 0.33
2009 -0.49 -0.87 -0.59 -0.96 -0.81 0.04 0.24 0.23 0.34
2010 -0.48 -0.89 -0.73 -0.97 -0.85 0.02 0.16 0.19 0.33
2011 -0.46 -0.90 -0.76 -0.98 -0.88 0.01 0.18 0.22 0.32
2012 -0.41 -0.91 -0.73 -0.98 -0.88 0.03 0.21 0.24 0.34
2013 -0.42 -0.91 -0.70 -0.98 -0.86 0.05 0.23 0.25 0.32
2014 -0.48 -0.91 -0.74 -0.97 -0.87 -0.03 0.20 0.26 0.26
The authors calculated the intra industry trade index of all kinds of commodities in 2000-2014,
the results are shown in table 4. The authors found the index IIT is larger for two kinds of
products (SITC5,SITC7). And IIT index on SITC5 is more than 0.9 from 2005, then maintains a
high level. Chemical products and related products (SITC5) in Taiwan has gradually catched up
with the international level, and the competitive advantage of these products have increased.
Although the IIT index on SITC7 at the beginning of the century is at a high level, but in recent
years there is a downward trend on Taiwan's machinery and transport equipment (SITC7). It has to
face more and more international competition, and further erode the original competitive advantage.
Table 4. Intra-industry trade index IIT.

Conclusions and Suggestions

Primary products have no international competitiveness in Taiwan. The export trade shows a
comparative disadvantage, especially in beverages and tobacco, mineral fuels, lubricants and related
materials, animal and vegetable oil, and wax. Because of the scarcity of resources, the international
competitiveness of the natural resource intensive products is very weak. It is difficult to change this
situation, but the gradual deterioration of the trend should be concerned about.
Industrial products industry in Taiwan has been out of the comparative disadvantage, and now it
is in a weak comparative advantage in the international competition. Among capital and technology
intensive products, the revealed comparative advantage index(RCA), trade competitiveness
index(TC) and intra-industry trade index(IIT) of chemical products and related products increase
quickly. These show that the industrial structure and technology development capabilities have been
improved. Therefore, the whole industry gradually shows a certain international competitiveness.
And the exports of machinery and transport equipment have a strong comparative advantage. Also
the industrial structure is reasonable, and the technology development ability has reached a high
level. In order to promote the sustainable development of the industry, it is necessary to increase
industrial policy support, create their own independent core technology, and actively respond to the
challenge of technical upgrading. At the same time, the export competitiveness of miscellaneous
products is relatively stable, while export competitiveness of manufactured goods is decline. In
Taiwan, the international competitiveness of labor-intensive products is weaker than that of capital
and technology intensive products.

49
 Compared with mainland China, Hongkong, Canada, Singapore, South Korea, the United States,
Japan, India and the United Kingdom, the competitiveness of all kinds of primary products in
Taiwan ranked amostly in the bottom. Among the Industrial manufactured goods, machinery and
transport equipment category ranked in fourth, while the remaining three categories ranked in third.
The international competitiveness of manufactured goods in Taiwan is stronger than that of primary
products, but the advantage of international competition is not very obvious. For the the competition
of export goods, Taiwan do not have the commodity type with a strong export competitiveness.
And at this point, Taiwan is not same as Canada, India, and Mainland China. Compared with Korea
and Hongkong, Taiwan has more competitive products, but the competitiveness of the single type
of products still needs to be improved. Compared with singapore,the competitiveness gap between
different kinds of goods is larger.
At present, the export products with comparative advantages in Taiwan are mainly capital
intensive products. Such as equipment manufacturing and new technology development, their
comparative advantages are gradually becoming prominent and export proportions increase year by
year. To further expand exports and enhance the international competitiveness of export
commodities, government should increase investment, promote product innovation, enhance the
core R&D capability, promote the opening of overseas pavilion, hold the purchase fair, expand the
commodity trade network, use a variety of marketing channels, and promote the further
development of the economy.

Literature References
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D . C .: World Bank, 1991.
[2]. Balassa B. Trade Liberalization and Revealed Comparative Advantage. The Manchester
School, 1965, 33(2): 99-123.
[3]. Bernard, A., Redding, S. and Schott, P., Comparative Advantage and Heterogeneous
Firms, Review of Economic Studies, 2007, 74, 31-66.
[4]. Deardorff, Alan V. University of Western Ontario. Centre for the Study of International
Economic Relations, and University of Western Ontario. Dept. of Economics. Comparative
advantage and international trade and investment in services. Department of Economics, University
of Western Ontario, 1984.
[5]. Seyoum B. Revealed comparative advantage and competitiveness in services: A Study with
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[6]. Paul. R. Krugman and Maurice. Obstfeld International Economics: Theory and Policy. Third
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journal Archives of Taiwan studies in chinese, 2015, 01: 68-78.

50
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Interaction Mechanism and Comparative Study of Talent Resources and

Economic Growth in Xian

Jie-yi PAN1, Cong-cong FAN1, a, * and Ping-xiao HOU2

1
School of Management, Northwestern Polytechnical University, Xian 710072, China
2
Shanghai Wellhope information Safe Technology Ltd, Beijing 100097, China
a
Email: emilyfancying@163.com
*Corresponding author

Keywords: Talent resource, Economic growth, Calculation model, Talent capital contribution rate.

Abstract. With the transition of Chinas economic growth to innovation-driven, innovations

fundamental driver lies on talents, and the interaction mechanism between talents and economic
growth has attracted scholars more attention. Using the statistical yearbook data from 1997 to 2011,
Lucas economic growth model was introduced into the research on relationship between Xian talent
resources and economic growth, and compared with the Chengdu, Wuhan and Shenzhen. Found that
the quantity, quality and structure of talent resources directly influence the economy growth rate. The
capital contribution rate of Xian is relatively low, but Xians talent capital stock and growth rate is
relatively high, which shows that the contribution of talent resources to Xians economic growth
have much space for growth in a long run. Then through analyzing the obstacles of transformation
from talent resources advantages to economic development advantages, we proposed three
countermeasures about gathering talents to form a multiplier effect, improving government policy to
promote talent input-output effect, strengthening service and optimizing environment to improving
the talent resources utilization rate.

Introduction
On the background of knowledge economy and economic globalization, Chinas economy has shown
a new normal. Based on the transition of china economic growth from investment-driven to
innovation-driven, talent resources have been in a dynamic and leading position among various kinds
of resources, which has an important role in promoting the regional economy.
Dating from the idea of human capital firstly proposed by Adam. Smith in The wealth of nations,
economists in the study of the factors affecting the economic growth, found that talent resources plays
a more and more importation role in promoting economic development. In nearly two decades of
research, economists have come to a common conclusion: With a wealth of talent resources and
higher human capital stock, a country or regions economic development level in a relatively short
period of time can catch up with and even surpass technology leading countries or regions [1]. Qi-ping
Zhang studied the relationship of the talent resources and economic (industrial) structure, talent input
and economic growth, talent flow and economy overall development as an example of Huizhou,
concluded that talent resources given priority to development is important in regional economic
development [2]. Hong-yu Zhou etc. researched how to transform science advantages, education and
talent advantage in Wuhan into, and the advantages of the development, summed up the existing
problems, and put forward the countermeasures and suggestions [3]. Xian-xiang Kong believes that
human capital is one of the most important factors in the development of regional economy [4]. The
influence of human capital on regional economic is mainly in regional economic growth speed,
regional comparative advantage, regional sustainable development to achieve, and proposed some
policy measures to strengthen the human capital accumulation. Wei Fang etc. explored the
relationship between the scientific density and technological talent resources and regional economic
development, the two is closely related [5]. Hong-xiang Sun measured and analyzed human capital
51
contribution to economic growth, illustrated that the high technology industry is anthropocentric
economics, to attract and develop the human resources will have a direct impact on the high and New
Technology Industrial Development Zone of economic growth rate and quality of the operation [6].
Through the review of the relevant literature, found that existing researches on talent resources to
promote economic growth did some research, but research depth is not enough, more attention is
focused on the existing problems and related countermeasures. The process of talent resources to
promote the regional economic growth is a complex system composed of many systems. On the one
hand, the present studies few deeply research the interaction mechanism and path study of Xian talent
resources and economic growth. On the other hand, Xian talent contribution rate and relative
competitiveness level is not calculated, and the comparative study between cities is relatively few.
According to Statistical Yearbook data, this paper implicated Romer-Lucas model to calculate the
contribution of talent resources in Xian city to economic growth in 1997 to 2011, and analyzed
relative competitive level of Xian by comparison with other provincial cities. The aim is to study the
status of talent resources in the economic growth factors and its relationship with the economic
growth of Xian. This paper deeply analyzed main obstacles and problems in the process of the
currently transforming talent resources advantage into economic development advantage and
proposed countermeasures and recommends, which improves Xian City talent capital contribution
rate, and provided more scientific evidence to work out related social and economic development
strategy and relative policy. On the other hand, the ideas and methods of this study are helpful to
further study of relationship between the regional talent resources and economic developments, and
explore the path of regional talent resources to promote economic development.

Calculation Model and the Selection of Relevant Indicators

Referring to the calculation method of talent resources contribution rate to the economy published by
the Central Committee of the Communist Party of China in Statistic report of Chinese talent
resources, the quantitative calculation of the relationship between human resources and economic
development in Xian from 1997 to 2011 was made by using Lucas economic growth model, Model:

Y=AKLu. (1)

Y is the output variable, K is the material capital, L is the quantity of the labor force, A is the
comprehensive efficiency factor, , are K, L output elasticity, and u is the random error. In the model,
Employees are regarded as the same physical workers, ignoring the role of talent capital on economic
growth which is formed by human capital input on the part of the workers, and denying the
heterogeneity of employees. So in this paper takes into account the impact of ordinary labor and talent
labor on economic growth, the Lucas economic growth model is changed to the following human
capital classification model:

Yt=A(t)KtLtHtrut (2)

Yt is the gross domestic product (GDP), Kt is capital input (material capital stock), Lt is basic
human capital input, Ht is talent capital input, ut is random error, A(t) is the comprehensive factors, ,
, r is capital input, basic human capital input and the talent capital input elastic coefficient.
In order to estimate the parameters in the model (2), take logarithm of the formula (2) on both sides
and the linear equation is obtained:

ln Yt=lnA(t)+lnKt+lnLt+rlnHt+lnut. (3)

The equation (3) is transformed into the form of difference equation:

Yt/Yt=At/At+Kt/Kt+Lt/Lt+rHt/Ht. (4)
52
 Formula (4) respectively as: The growth rate of economic growth rate (Yt/Yt), comprehensive
factors growth rate (At/At), capital input growth rate (Kt/Kt), basic human capital input growth
rate (Lt/Lt), and talent capital input growth rate (Ht/Ht), Kt/Kt, Lt/Lt, rHt/Ht is respectively
share of the contribution of capital input, basic human capital and talent capital on economic growth,
it is divided by Yt/Yt income business, i.e. The contribution to the economic growth rate.
Determination of Output Index Yt
GDP represent output variables, As GDP can reflect not only the regions economic development
level but also the economic strength and wealth of the area, and GDP data acquisition easier.
Yt is t years GDP of Xian. In order to reduce the impact of price factors, this paper is based on the
same price in 1978 as the benchmark data for other years to amend. The following table 1is the Xian
GDP from 1997 to 2011 after the correction with fixed price.
Table 1 GDP correction value of Xian in 1997-2011

Year 1997 1998 1999 2000 2001 2002 2003 2004

GDP
212.44 240.69 270.06 305.17 345.14 391.04 443.84 503.75
[Billion]
Year 2005 2006 2007 2008 2009 2010 2011
GDP
574.28 654.68 746.33 867.98 993.84 1137.95 1294.98
[Billion]

The data in Table 1 is the corrected value of the data in the statistical yearbook of Xian
The Measurement of Material Capital Stock Kt
The material capital stock refers to the form of money in the production process, such as machinery,
equipment, factories, buildings, transportation tools and so on, which is an estimated value.
Kt is the material capital stock of Xian in t year.
The estimated value of material capital stock will directly affect the accuracy of the model
calculation results. Measurement which has been widely used in the input data of material capital is
the perpetual inventory method created by gold. Smith in 1951 [7]. In this paper, considering the
China conditions, using the perpetual inventory method of Jun Zhang estimate the capital stock of
Xian[8]. The perpetual inventory method formula:

Kt+1=It+1 + Kt - gKt (5)

Among them, t is year, It+1 is the actual value of the material capital input, g is the material capital
stock depreciation rate, Kt is the previous year material capital stock.
This paper, in 1978 as the initial year, refer to the initial capital stock estimation method raised by
Jun Zhang, K0 is the fixed capital input in Xian in 1978 divided by 10% as the initial capital stock [8].
g is according to the research data of Jun Zhang [8]. In 1992 (including 1992) before the material
capital depreciation rate is 5%, in 1992 after the material capital depreciation rate is set at 9.6%.
Because before 1992, Chinese industry is not developed, manufacturing and construction equipment
loss rate is low, China economic development is rapid after 1992, manufacturing industry such as
building and equipment loss rate is higher. It+1 is the actual value of the fixed assets input, represented
by the constant base year price. The calculation method is: in 1978, the price index is 1, the fixed
assets input price index of each year since 1978 is calculated; and the annual fixed asset input actual
value is obtained by multiplying the annual fixed asset input. Finally according to the perpetual
inventory method to measure the stock of physical capital. The measured material capital stock of
Xian during the period of 1997-2011 was shown in table 2.

53
 Table 2 material capital stock of Xian in 1997-2011
Year 1997 1998 1999 2000 2001 2002 2003 2004
material capital
191.30 202.95 221.28 243.17 275.59 308.95 359.08 415.63
stock [Billion]
Year 2005 2006 2007 2008 2009 2010 2011
material capital
505.35 624.64 778.29 962.61 1209.91 1520.06 1789.26
stock [Billion]

The data in Table 2 is the measured value of the formula (5) of the data in the statistical yearbook of
Xian.
The Measurement of Basic Human Capital Stock (Lt) and Talent Capital Stock (Ht)
There are many methods to measure the human capital, such as the degree index method, the labor
compensation method, the education funds method and the education year method. The education
year method has different characteristics and obvious advantages compared with other methods. It is a
representative method to estimate the human capital stock at present.
This paper uses the education year method to measure human capital. In order to reflect the huge
differences between the time value in different stages of education, and the distinction between basic
education and professional education, the total human capital decomposition is divided into two parts:
basic and specialized human capital, and the professional human capital is the talent capital.
Lt is basic human capital stock of Xian in t year; is talent capital stock of Xian in t year.
The current paper refers to the calculation method of talent resources contribution rate in Statistic
report of Chinese talent resources, and use the concept of Elementary education equivalent years
raised by A Maddison [10]. In order to reflect the essence of human capital differences, we assign the
low primary, secondary and higher education respectively with coefficient 1, 1.4, 2.
Maddison measurement formula of human capital stock:

Ht =Lithimii=0,1,2,3,4,5,6 (6)

In above equation, Ht is total human capital stock in t year, Lit is the number of employees at I
level education in t year, hi is years of education at I level education, the number of years of education
at different educational levels is determined as: illiteracy and semiliterate is 1 year, primary school is
6 years, junior high school is 9 years, high school (including technical secondary school) is 12 years,
college is 15 years, 16 years of undergraduate, graduate student is 19.6 years. mi is assignment
coefficient of different educational level, m0~m6 is respectively 1.0, 1.0, 1.4, 1.4, 2.0, 2.0, 2.0.
The level of education for junior middle school and the below employee group is basic human
capital, The level of education for high school (including technical secondary school) and the up
employee group is talent capital.
Shanxi Province in 1997 to 2011 employees quantity and level of education can be gained from
Statistical yearbook of Chinas population and employment and China Labor Statistical Yearbook.
According to (6), human capital stock can be calculated in Shaanxi Province between 1997 and 2011.
There are three ways to calculate the stock of human capital in Xian [11, 12], first is to use the
Shaanxi Province human capital stock per person instead of Xian, and then multiply with the city of
Xian employees number, that is the stock of human capital in Xian. But this method would
underestimate per human capital stock of Xian. Because the Xian is the capital city of Shaanxi
Province, universities, scientific research institutions and high-tech enterprises are concentrated,
highly educated labor personnel number is more; The second is that According to the input-output
ratio, use the formula: GDP1/GDP2=H1I1/H2I2(GDP1, GDP2 is respectively Shanxi Province and
Xian actual GDP. I1, I2 is annual actual fixed assets input, H1, H2 is per capita human capital stock) ,
but the result would be high; The third is to obtain the education level of employees from the Xian in
2000, 2005, 2010 Census and sampling data. Assuming that the educational level of the employees in
Xian and Shaanxi Province have the same change trend, by linear interpolation method can calculate
54
the remaining years of the educational level of the employees. Compared the advantages and
disadvantages of the above three methods, this paper uses the first method to estimate the basic human
capital stock and talent capital stock in Xian, respectively see, in Table 3 and table 4.
Table 3 Xian basic human capital stock
Year 1997 1998 1999 2000 2001 2002 2003 2004
basic human capital
2470.2 2693.4 2697.2 2494.6 2718.7 2743.9 2729.2 2857.0
stock[ten thousand]
Year 2005 2006 2007 2008 2009 2010 2011 2012
basic human capital
3065.2 3089.7 3181.9 3278.5 3527.3 3658.8 3532.4 3065.2
stock[ten thousand]
Table 4 Xian talent capital stock
Year 1997 1998 1999 2000 2001 2002 2003 2004
talent capital stock
1094.4 1296.9 1554.0 1327.0 1646.1 1507.1 2161.9 2336.2
[ten thousand]
Year 2005 2006 2007 2008 2009 2010 2011 2012
talent capital stock
1895.8 1918.6 2085.7 2241.2 2162.1 2707.1 4100.7 -
[ten thousand]

The data in Table 1 is calculated value in China population and employment statistics yearbook,
China Labor Statistics Yearbook, Shaanxi census data, Xian census data, Shaanxi statistical
yearbook, Xian statistical yearbook.

Quantitative Calculation and Analysis of the Relationship between Talent Resources and
Economic Growth in Xian
According to the formula (2) and the formula (3), put the table 1, table 2, table 3 and table 4 data into
the formula (3), we use SPSS18.0 analyze the model.
The F test is significantly higher, material capital stock, basic human capital and talent capital
variables T test are significant in significant level. The explanation of the model is 98.5%, model pass
inspection. The calculated results are shown in Table 5.
Table 5 the relationship between talent resources and economic growth in Xian
Variable coefficient
Variables Model coefficient T value Significant level
standard deviation
K 0.895 0.146 4.767 0.000
L -0.089 0.740 -0.121 0.048
H 0.204 0.139 1.463 0.001
Constant 1.115 5.375 0.207 0.000
R2 0.985
Er 0.08062

As can be seen from the table 5, the elements elastic coefficients are =0.895, =-0.089, r=0.224,
and ++r>1. This can be concluded as follows:
++r>1, it indicates that the economic development of Xian is in the increasing stage of scale
returns.
r>, we can know that the stimulating effect of the talent capital of Xian on the economy of Xi'an
is higher than that of the basic human capital.
>r, it indicates that the stimulating effect of material capital on economy is higher than that of
talent elements.
Through the calculation, the contribution rate of material capital stock to the economy of Xian
during the period from 1997 to 2011 was 41.25%; The contribution rate of talent capital to the
economy is 16.6%, and the contribution of basic human capital to the economy is negative, which
shows that the contribution of basic human capital to economic growth is comparatively small.
55
Through the comparison of the contribution rate of the material capital and talent capital to the
economic growth of Xian, it is found that the economic growth of Xian mainly depends on the input
of capital at the present stage. But according to the Xian talent capital growth rate, the stimulating
effect of human factors on economic growth is increasing. So in the long run, the contribution rate of
talent capital to Xian economic growth is still much room for growth.

Comparison among Xian and Chengdu, Wuhan and Shenzhen City

In order to value the talent resources devotion to economic growth sharply in Xian city, this passage
compares Xian city with the same sub-provincial cities: Chengdu, Wuhan and Shenzhen city. The
original data of GDP, physical capital stock and talent capital stock in these cities are all from relative
statistical yearbook. Besides, the economic growth model and data measure style are aligned with
those in Xian city. The measurement and result are shown in table 6.
Table 6 Xian, Chengdu, Wuhan and Shenzhen analysis result
Talent
2011 2011 Physical 2011 Talent Talent capital Talent Capital
Capital
City GDP Capital Capital Stock elasticity contribution
growth rate
[Billion] Stock[Billion] [ten thousand] coefficient rate [%]
[%]
Xian 1294.98 1789.26 4100.7 0.204 10.4 16.6
Chengdu 1974.58 4372.15 3907.6 0.301 7.8 17.1
Wuhan 1970.67 2738.67 3804.9 0.340 7.8 18.4
Shenzhen 2897.15 1924.08 5942.1 0.313 11.5 23.4

The data is measured and calculated on the basis of The China Population and Employment
Statistical Yearbook, The China Labor Statistical Yearbook, and the Statistical Yearbook of the
four cities and census data.
According to the quantitative analysis of the four cities, there are results:
In 2011, the talent capital stock and growth rate in Xian City are higher than those in Chengdu and
Wuhan City, and just lower than Shenzhen City. So it indicates the advantage of talent resources in
Xian can guarantee continuing economic growth in the future.
During 1997 to 2011, the talent capital elasticity coefficient in Xian, Chengdu, Wuhan and
Shenzhen are 0.204, 0.301, 0.340, and 0.313, while there is 1% increasing in the economic growth
speed of these cities. Above that, the talent capital contribution rate to the economic growth in Xian
is below others, in the condition that four cities have the same growth speed of talent capital.
There are two causes leading lower talent capital contribution rate: 1) The talent capital elasticity
coefficient in Xian is below others; 2) The talent capital input has increased significantly during
1997 to 2011, E.g. the growth speed of fixed assets input in four cities are respectively 28%, 22%,
19% and 13%. In other words, the average growth speed of fixed assets input is above another three
cities, which lead to the higher percent of physical capital contribution rate in the economic growth
and the lower percent of talent capital contribution rate in Xian.
Compared with other cities, GDP and physical capital stock in Xian are lowest, reflecting
economic basis in Xian is more vulnerable than those. It also lags GDP in Xian.

Countermeasures and suggestions to further improve the contribution rate of talent capital in
Xi'an City
Chinas economy has shown a new normal, the factor scales driving force is weakened, and economic
growth will depend more on the quality of human capital and technological progress. Through the
analysis of results: Xian's talent capital contribution rate is only 16.6%, which is relatively low in the
four cities, but the talent capital stock and talent capital growth rate is relatively high in Xian, which
is shown that the contribution of talent resources to economic growth in Xian has a larger growth
space. Therefore, to actively adapt to the new economic normal, fully tap the demographic dividend,
56
innovate talent bonus, and imply talent strong city strategy is the inevitable choice for the scientific
development, rapid development and harmonious development of Xian. This paper proposed the
following countermeasures to improve the contribution rate of Xian talent.
Upgrading of Industrial Structure, Promote the Talent Gathering, and Form Multiplier Effect.
With economy mode transformation, optimization and upgrading of industrial structure, five leading
industries characterized by high and new technology will become the leading force, and upgraded
industry relies more on talent capital instead of material capital. Thus speeding up industrial
upgrading, especially to upgrade high technology industry, will accelerate the accumulation of talent
capital, and fully mobilize and expand talent capital stock, which increases talent capital contribution
rate. The following aspects: 1) Focus on the development of leading industries with high and new
technology with excellent professional talent team, which form a multiplier effect and improve the
contribution rate of talent capital; 2) Its essential to increase the input of high-tech innovation
technology, talents, and facilities, improve the competitiveness of innovation, enhance industrial
upgrading and stimulate the talents creative potential and power.
Perfect the Government Policy and Improve the Efficiency the Input and Output of Talents.
Perfecting talent policy system can not only attract more talents, but also stimulate the enthusiasm and
initiative of work personnel, which promote talent resources advantages in Xian in time to turn into
economic development advantage. The following aspects: 1) Attract talents by introducing
well-known enterprises, financial subsidies, and preferential policies; 2) Enrich talent training policy
and encourage different talents to receive on-the-job training, focus on the training of high-level and
highly skilled talents to improves the overall quality of talent; 3) Encourage the cooperation between
realm of technology and enterprise, combine production and research, which improves technology
achievement transformation rate; 4) Take policy incentives, build brand enterprises and other
diversified measures to make good use of local talent resources, reduce brain drain.
Improve Service, Optimize Environment and Enhance Talent Resources Utilization Ratio.
It is not enough to amend talent policies to increasing talent contribution rate, improving service and
optimizing environment are needed to distribute talents appropriately, retain talent resources and
utilize talents sufficiently. 1) Government should emphasize the Market Mechanism in talent resource
distribution, which makes better distribution, and utilization of talent resource. e.g. by improving the
information sharing platform, innovating business services platform and talent exchange service
platform, the talent supply and demand information can be matched, and the effectiveness of talent
resources can be fully increased. 2) The government combining with enterprises needs to create a
good law system, amend basic facilities, build the enterprise images that have clean environment,
friendly atmosphere, and standardized management. It can strength a sense of enterprise belonging,
improve talent environment in Xian, arousing the vitality and power of talent innovation.

Acknowledgement
This research was financially supported by Supported by the Shanxis soft-scientific item Study on
the interaction mechanism between talent resources and economic growth in the Development Zone
(2015KRM094)

57
References
[1] Jin-ying Wang, Qian Huang, Ming-shu Chen, The relationship between human resources and
economic growth: An Empirical Study of Tianjin City, J. Economic Review. 5 (1999) 61-64.
[2] Qi-ping Zhang, The relationship between human resource development and regional economic
development -- taking Huizhou city as an example, J. Value Engineering. 12 (2012)12-15.
[3] Hong-yu Zhou, Ping Ye etc., Wuhan citys technology and talent advantages into development
advantages, J. Journal of Wuhan Institute of education, science and technology. 11 (2006)
[4] Xian-xiang Kong, Research on the relationship between human capital and regional economic
development, J. Productivity research. 20 (2007)5-34.
[5] Wei Fang, Bo-tang Han, Dong Wang, The relationship between human resources density in
technology and the development of regional economy, J. Scientific research management. 3 (2007)
132-136+147.
[6] Hong-xiang Sun, Li Bai, Measurement and analysis of human capital contribution to economic
growth in Xian high tech Zone, J. Journal of Xian University of Science And Technology. 1 (2006)
137-140.
[7] The Communist Party Central Committees Organization Department, Statistic report of Chinese
talent resources, 2012.
[8] Ruo-en Ren, Xiao-sheng Liu, Some problems on the estimation of Chinas capital stock, J.
Quantity economy and technology economy. 1 (1997)19-24.
[9] Jun Zhang, Gui-ying Wu, Ji-peng Zhang, Estimation of Chinese provincial capital stock: 1952 -
2000, J. Economic research. 10 (2004)35-44.
[10] Angus Maddision, Millennium history of the world economy, Wu Xiaoying, translation, Beijing:
Peking University press, Beijing, 1979.
[11] Zhao-ming Gui, Research on the measurement method of talent capital, J. Journal of Wuhan
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economic growth in Xian, J. Journal of Xian Aviation College. 4 (2013)30-35.

58
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Influence of Cultural Creativity on City Marketing:

The Case of Quanzhou

Ying ZHU, Ya-ting ZHOU

Department of Teaching Development Center,
Fuzhou University of International Studies and Trade,
No. 28, Yuhuan Road, Shouzhan New District, Changle, Fuzhou, Fujian, China

Keywords: Cultural creativity, City marketing, Quanzhou.

Abstract. With the slowly revive of the international economy. It is urgent for our government to try
to popularizing their city to the world. It is known to us all, that culture is one of the most important
elements in a nations development. It makes a nation be different from others, and can bring the
vitality to a country. Therefore, marketing a city is essential to corporate with culture. In this research,
the influencing factors of cultural creativity on city marketing has been analyzed by using the
qualitative research and focus group interview. The sources of culture creativity is rich, however, the
current situation of city marketing implementation was very limited. It is concluded that given culture
a new form and new transmission channel is very essential in Quanzhous city marketing, especially
in culture penetration, culture development, culture innovation and diversification.

Introduction
Nowadays, the world is having a complex and profound change. The world economic recover slowly
and develop differently. International investment trade patterns and multilateral trade rules deeply
adjust. National development problems are still griming. More and more scholars are curious about
how to marketing the city to keep the economy get a stable development. It is considered that relying
on the cultural creativity industry is the most valid methods. With the support of Chinese government
to build up the Maritime Silk Road, Quanzhou, as the starting point of maritime silk road and a
window of Haixis cultural exchange, playing an important role in the coastal trade and external
exchanges. How to packing in Quanzhou and generalizing the city to the world through cultural
creativity industry is a question need to think about. In this research, a literature review about the
cultural creativity and city marketing was firstly made and then how to make an innovation on culture
industry and marketing the Quanzhou city with the creative culture forms or transmit ways were
analyzed. Finally, suggestions were provided for government and cultural industry works on
marketing the city of Quanzhou.

Cultural Creativity
Cai defined that culture industry is based on the creativity and combines with the rich connotation,
selling ones copyrights. The style of corporate to work is the cultural merchandise produce and
culture service [1]. Actually the authors from UK have firstly defined that creative industry is
characterized by output of commercialized products with a high aesthetic and symbolic content,
reflecting the tendency for creative production to be increasingly commoditized, while commodities
themselves become increasingly invested with symbolic value. There also have people say that
creative industry are come from personal creativity, technology and genius, through the way of
exploiting and applying the intellectual property to create wealth and employment opportunities.
Although those concepts about culture industry and creative industry are appropriate in the past,
they are not following the social development. Thinking and knowledge are changed by time and
enriched to adapt to the society. It is considered that the mental culture resources are the basically
59
resources in cultural industry, though the form of production management and market operation.
What makes culture industry different is all the culture industry activities are combine with the
creativity [1]. However, culture and creativity industry are not limit to unite the two concepts, it also
emphasize to make culture different not only in his content, but also in his transmit routes. The
creativity should be the internal and external factors. Thus, the progress of city marketing should be a
difference in culture and transmit or external forms.

City Marketing
City marketing is applying the methodology of marketing, planning and organizing a citys policy,
economy, environment, industry, agriculture and so on. After that, finding a route obeys the law of
economic development and setting up a city brand to build up the competitive power of a city,
increase social treasure, promote city development and satisfy peoples demand. Short and Kim stated
that city management and city marketing was formed when marketing developed into a subject [2].
Kotler defined the concept of city marketing for the process of city planning to meet different target
market requirements [3]. If this plan could satisfy the demand of enterprises and residents to the city
product as well as the demand of potential target market, it would succeed. The generation of city
marketing provided guidance and theoretical foundation to city construction and development.
However, the concept just emphasized the importance of city planning, lacking of real marketing
thoughts.

Analysis of the Influencing Factors

Sources of Cultural Creativity

It is considered that cultural creativity is necessary for building up a citys brand and going
international. Therefore, the culture activities should be creative.
Quanzhou is an area that full with different cultures. Quanzhou is one of the election capital of
culture in East Asia and the United Nations regard it as the first exhibition center of the multi-culture
in the world. Therefore, it is important to make an integration of different cultures and then enhance
the relevance on the cultural creativity industrys chains and links by combining the cultural creativity
industry with high-technology and local resources. For example, Japan transmits their nations values
and fashion style in their animation production. Thus, the diversity of culture can build up a unique
brand for a city and the public can memory the city under its difference cultural form. The function of
the high-technology is a more convenient way to advertise the intangible cultural heritages, and it is
an open stage to communicate and discuss the culture. The culture can be more close to the public by
using technical media.
Moreover, it is an effective way to make a difference in form of transmission. There are many
communication media for culture spreading. Quanzhou is one of the assembly room in 2016 Spring
Festival party. It is a good chance for the world to know the city, because it is a worldwide known
event. It is necessary for us to rely on the abundant platform. Facebook, Twitter or TED, and local
cultural documentary. Moreover, local festival marketing is also a good choice. Taking Germany an
example, the annual festival of beer-Oktoberfest has over 200 years history. Most tourists are
attracted by this activity and now the Oktoberfest become one essential tag for Germany. It is a good
way for Quanzhou to organize a typical activity to attract the worlds attention by using its rich culture
resources. The theme activity can make culture more interesting and competitive, pushing is as a
singular symbol for Quanzhou.
Evaluation of Current City Marketing
City marketing as a new city management idea getting more attention. It is believed that a city
marketing era of Quanzhou for promoting city image and enhancing city competitiveness has come. It
will promote city brand and the urbanization development, attract more investors, talents, tourists and
60
achieve the purpose of city marketing itself. It is a good development opportunity for Quanzhou to
improve competitiveness and comprehensive strength [4]. However, there are some problems in
current city marketing.
From the perspective of branding, Quanzhou is lacking of brand building. Although there are many
brands such as Septwolves, ANTA, Xtep and so on, there are little actions on integration, brand
construction, unified leadership and system planning. Brand marketing activities are fragmented [5].
In recent years, the phenomenon that many private enterprises move to other provinces. ANTA,
Septwolves have moved its headquarters to large cities like Xiamen, Shanghai. The Quanzhou
industrial economy presented a potential risk of outsourcing. According to a survey, the private
capital is at least 100 billion yuan in local economy [6]. However, because of lacking of investment
motivation, the rich folk capital energy is still not fully released. Most enterprises choose to move to
areas have regional advantages. Many enterprises appear brain drain to one degree or another [7].
With a long history, the United Nations Educational, Scientific and Cultural Organization
addressed Quanzhou as world multicultural exhibition center. The cultural resources of Quanzhou is
the competitive advantage. However, most tourists dont know the rich tourism resources of
Quanzhou and the tourism industry cluster has not yet formed. Thus, the tourism transportation
system and tourism service level is low and the satisfaction of tourists is poor.

Suggestions
Form the analysis above, it is clear that cultural creativity is essential for city marketing. A new
Matrix is designed for city marketing to give suggestions on how to make culture more attractive and
make the full use in city marketing to our government and the people who work in the field of culture.
Table 1. The resources based matrix for city marketing.

Existing resources New resources

Existing resources Culture penetration Culture development
New resources Culture innovation Diversification

Culture Penetration
Mobilizing citizens to participate in the city marketing. City marketing can enhance civic pride and
satisfaction of life, improve the city cohesion and charisma and encourage citizens to build their
hometown with higher enthusiasm.8 Citizens are the core and soul of the city. The city marketing of
Quanzhou should absorb the citizens to participate in. It reflects the willing of citizens that they take it
as their own subjective things. For example, make sure citizens fully understand the city planning and
construction of in the future.
Culture Development
By setting a city brand based on the creative culture, it is the time to spread the culture and brand to the
world. Firstly, the digital media are very efficacious to transmit messages. The government should
open more terrace to supports and help the culture go to the international world and select the proper
platform to show his amazing culture. Secondly, establish some activities to give the public more
opportunities to get close to the local culture, because people are one of the best culture transmitters
and city salesman.
Culture Innovation
City culture reflected a citys spirit, which is a symbol character of the city. In the new economic era,
the effect of city culture is not just on providing spiritual motive and intellectual support, but also
embodied in creating economic value, enhancing city service function and improving the image of the
city. These functions of city culture are achieved by cultural creativity.

61
 In terms of culture content, injecting new ideas to traditional culture and trying to make traditional
culture inherit and develop. Therefore, developing cultural creativity could absorb various advanced
culture, realize the innovation and promote local culture.
In terms of culture form, with the help of technology progress, the cultural products and services
appear to residents in different forms, promoting the innovation of city cultural form. Combining
cultural creativity with technology progress, providing citizens with unprecedented new form of
cultural experience.
In terms of culture carrier, with the development of economy, peoples spiritual and cultural
demand growth rapidly. Consumers are no longer satisfied with the use value of goods itself, and
more focus on the concept of value, which injected new cultural elements ,such as ideas ,feelings and
taste.
In terms of culture transmission, the development of the technology not only provides a richer
cultural creative form, but also provides more means of communication. Combining cultural
creativity with the new technology, promote the innovation of cultural transmission means.
Diversification
The single culture do not have the plenty and permanent attraction. Therefore, keeping the
diversification of culture is important. The government should encourage and support the
communication with the international countries. In the process of culture communicate is the chance
for us to learn the strength from each other. The more international cultural communication activities
can make culture have a deep crash with other culture, though the bout of those culture, the features of
the city marketing can enriched more innovative.

Conclusion
Considering all of those elements, it is clear that the cultural creativity is an essential point in
Quanzhous marketing and popularizing. With the highly support from our government such as the
president Xis propose. It is the proper time for Quanzhou to establish their own city brand. In order to
market the city of Quanzhou, it is important to rely on the creative culture. How to makes a culture
more attractive should do something not only on the cultures content and external form, but also on
the cultures spread. The application of the resource based Matrix provides a special point to our
government and culture works, especially in culture penetration, culture development, culture
innovation and diversification. The business activities and government policies can reform from these
aspects and motivate the citizens participate into the city reformulation. However, our research only
provides the theory knowledge to the other scholar, and the function is still need to be practiced.

Acknowledgment
This is the National Undergraduate Training Program for Innovation and Entrepreneurship and the
program title is Culture Creativity in City Marketing Approaches Design from the One Belt One
Road policy perspective: the Case of Quanzhou. The program code is 201513762005. Finally, the
deepest thanks go to our program tutor Guochao Lin.

References
[1] Jia-jing Cai. Culture Industry Marketing, Beijing Tsinghua university Press, Beijing,2007.
[2] Short., R.J. Selling the City in Difficult Time, J. Wiley and Sons, 1998.
[3] Kotler P., Asplund C. Rein I., Haider H. D. Marketing Places, Europe eds., Prentice Hal, 1999.
[4] Dicong Su. Fujian Province Socialistic Institute Journal (In Chinese), 2006.
[5] Shi-jiang Liu, Zixing Cai. Nangfan Institute Journal (In Chinese), 2007.

62
[6] Yun-xuan Wu., Chinese Private Enterprise Technology and Economy (In Chinese), 2005.
[7] Shang-wei Lin, Analysis of developing Fujian non-governmental capital (In Chinese, 2005).
[8] Jun Yang. Tourism marketing: China Tourism report (In Chinese), 2006.
[9] Xiang-hui Liu. Network marketing introductory theory, Qinghua University Press, Beijing, 2010.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Sales Forecast for Amazon Sales Based on Different

Statistics Methodologies
Jian-hong YU1,*, Xiao-juan LE2
1
Business School, Jianghan University, Wuhan, Hubei 430056, China
2
China General Nuclear Power Corporation, Futian District, Shenzhen, Guangdong 518120, China
*Corresponding author

Keywords: Forecasting, Winters exponential smoothing, Time-series decomposition, ARIMA.

Abstract. Accurate sales forecast plays an important role in reducing costs and improving customer
service levels, especially for B2C e-commerce. This paper tries to forecast future sales at Amazon
based on historical sales data. Firstly, it proposes three possible forecasting approaches according to
the historical data pattern, that is Winters exponential smoothing, time-series decomposition and
ARIMA. Secondly, it specifies three relatively accurate and suitable approaches. Then, a sensitivity
analysis will be conducted on the three methods, considering the suitability of the forecast methods
will be judged by whether or not they produce random residuals. Finally the three methods will be
implemented to forecast Amazons quarterly sales in 2014. The result can help Amazon well manage
its future operation especially for the season sales at Christmas.

Introduction
For an online retailer, the special online shopping festival, such as the Black Friday and Cyber
Monday in USA, and the NOV 11 in China, makes up a substantial percentage of sales. This is
especially true for Amazon.com. In the Black Friday of 2013, Amazon sold four million items, at a
rate of around 41 items per second. In order to provide better service during the holiday shopping
season, Amazon hired 15,000 temporary staff and 2,300 extra permanent employees. During this
season, it is a major challenge for Amazon to allocate resources such as employees, the third part
logistics and items, to attain higher customer satisfaction. Therefore, it is useful to forecast future
quarterly net sales, which can help Amazon prepare for future Black Fridays and Cyber Mondays.
There are some methods that usually used to forecast the demand in short time, such as Winters [1],
Time series analysis [2-3] and ARIMA [4-5]. J.N. Xue and Z.K. Shi [6] adopts chaos time series
theory to forecast short-time traffic flow. P. Zhou et. al. use ARIMA-BP combination model [7] to
forecast the traffic demand of civil aviation tourism. L. Zhou and X.L. Yong [8] establish ARIMA(0,
2, 2) model using stationary data of historical electricity consumption, and make an empirical case on
Beijing City.
Nowadays, some researchers use different methods to forecast the e-commerce demand. Y.F. Tang
[9] uses RBF neural network and SVM (support vector machine) to construct a dynamic demand
forecasting system of fresh agricultural products for e-commerce, and analyzes the forecasting
system with application of MATLAB simulation software to compare their effectiveness. Y.Y. Fan
[10] uses the brief elaboration regarding coalition analysis method to forecast the product demand of
demand chain in e-commerce, and states the coalition analysis method on the case of MP3 production.
The result indicates that the coalition analysis may improve the accuracy of product demand forecast.
However, these papers doesnt consider the special shopping festival of online shopping, such as
Double 11 and Double 12. As we know, only Q. Zheng [11] try to forecast the e-commerce demand
on Double 11. Q. Zheng [11] forecasts the demand of Taobao in NOV 11 with linear regression,
exponential regression, logarithm regression, power multiply regression, and polynomial regression
models, and points out that the polynomial regression model is better than others.

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 In this paper, we will try to use different forecasting methodologies to forecast Amazons future
quarterly net sales, based on its historic quarterly data. First, we will use three different methods to
forecast the quarterly net sales in 2013. Then we will test and justify different approaches by
comparing forecasting data with the actual net sales in 2013, and find the best approach suitable for
forecasting future quarterly net sales at Amazon. Finally, we will conduct a sensitivity analysis and
implement the best method to forecast Amazons quarterly sales in 2014.

Data Collection and Forecasting Methodologies

In this paper, we will try to forecast the quarterly net sales in 2013 and then compare the actual and
forecasting data. Usually, there is seasonality present in a retailers sales, resulting from the holiday
shopping season. Thus, it is important to collect data continuously. We obtained Amazons net sales
of the first quarter to the third quarter from 2000 to 2013, then we attained the fourth quarter on the
website of Amazon, which amounted to a total of 56 observations (actual net sales data).
There is seasonality present in the sales of Amazon. Sales were the highest in the fourth quarter of
each year throughout the data. This is typical for a retailer since the fourth quarter encompasses the
holiday shopping season that typically runs from late November through the end of December. In
addition, sales have been increasing over time. The deseasonlized sales chart shows that sales have
been rising at an increasing rate.
Based on the analysis of the data pattern, we can use Winters exponential smoothing, time-series
decomposition and ARIMA (Autoregressive Integrated Moving Average model) to forecast
Amazons quarterly net sales. The comparison of different forecasting approaches can be categorized
as shown in Table 1.
Table 1. Comparison of different forecasting method.

Approach Data pattern Number of observations Forecasting Horizon

Winters Trend and Seasonality At least 4 to 5 per season Short to medium
Trend, seasonal and cyclical Enough to see two peaks
Time series Short, medium and long
patterns and troughs in the cycle
Stationary or transferred to
ARIMA Minimum 50 Short, medium and long
stationary

Sales Forecasting and Residual Analysis

Winters Exponential Smoothing

Winters Exponential Smoothing allows for both trend and seasonal patterns of the data to be taken
into account as the smoothing process is applied. A Winters Exponential Smoothing forecast model
is created using sales as the dependent variable, time as the independent variable, and a seasonality of
four.
The forecast result attained from STATGRAPHIC Centurion using Winters Exponential
Smoothing is shown in Fig 1 and Table 2.

Figure 1. Plot for forecasting sales ($000) of Amazon using Winters Exponential Smoothing.

65
 Table 2. Quarterly forecasting sales in 2013 using winters exponential smoothing.

Period Forecast($000) Lower 95.0% Limit Lower 95.0% Limit

Q1/13 15,796,700 14,993,700 16,599,800
Q2/13 14,771,000 13,867,900 15,674,200
Q3/13 16,005,800 14,859,600 17,152,000

Based on calculation, the RMSE equals 803,296, accounting for 3.14% of the actual average
sales in 2013. Intuitionally, the method of Winters Exponential Smoothing can be applied to this
forecast. The residuals of this forecast are random (for the non-zero P-values ) and thus Winters
Exponential Smoothing method can be applied to the quarterly sales forecasting of Amazon in 2013.
Time Series Decomposition (Improved)
The time series decomposition model is used by finding the linear trend of the data, along with a
seasonality index and a cyclical factor. To use this method, the centered moving average, and the
centered moving average trend need to be found. In this model, a central moving average trend is
established using the central moving averages of the past four quarters. This trend will then be
multiplied by a seasonal index for each quarter, as well as a cyclical factor in order to forecast sales
for 2013.
However, after testing we found the residuals are not random. To use time series decomposition,
the Box Jenkins methodology will have to be used to adjust the forecast. To do this, the residuals will
be forecasted for 2013 using an ARIMA model, and these forecasted residuals will be added to the
previous forecast to obtain the new forecast for 2013. The adjusted forecasts and residuals using the
Box Jenkins methodology are shown in Table 3.
Table 3. Quarterly forecasting sales in 2013 using improved time series decomposition ($000).
Date Previous Forecast Box Jenkins Adjustment Updated Forecast
Q1/13 11,211,000 5,179,360 16,390,360
Q2/13 10,205,300 5,621,420 15,826,720
Q3/13 10,437,300 6,186,300 16,623,600
Q4/13 16,854,700 8,005,830 24,860,530

Based on calculation, the RMSE equals 464,986, accounting for 1.82% of the actual average
sales in 2013, and indicating a small forecasting deviation.
Intuitionally the method of ARIMA can be applied to this forecasting for the smaller RMSE and
forecasting deviation. We can find that the residuals are random based on residual-randomness
testing result (for the non-zero P-values ). Thus, ARIMA is a good model that can be used to forecast
Amazon quarterly sales in 2013.
ARIMA
In ARIMA model, a number of ARIMA models will be compared, and the model that produces
random residuals with the lowest RMSE for the 2000 to 2012 sales will be used to forecast the 2013
sales. From the data pattern, we can find that the data is non-stationary because of the upward trend.
From the data pattern, we can find that the data is non-stationary because of the upward trend.
Thus, we can use the Box-Jenkins method can be used to deal with the data and then a best model will
be identified. Then ARIMA model, with chosen p, q and d, can be used to forecast the Amazon
quarterly sales in 2013.
After testing by Box-Jenkins, we can identify ARIMA (0,1,1)*(2,0,2) model is possible for this
data series. The forecasting result attained from STATGRAPHIC Centurion using ARIMA
(0,1,1)*(2,0,2) is show in Table 4 and Fig 2.

66
 Table 4. Quarterly forecasting sales in 2013 using ARIMA($000).
Period Forecast Lower 95% Limit Upper 95% Limit
Q1/13 16,062,400 15,518,200 16,606,700
Q2/13 15,648,300 14,878,600 16,418,000
Q3/13 17,192,800 16,250,100 18,135,400
Q4/13 27,423,500 26,335,000 28,512,000

Figure 1. Plot for forecasting sales ($000) of Amazon using ARIMA.

Based on calculation, the RMSE equals 920,062, accounting for 3.60% of the actual average
sales in 2013, indicating a small forecasting deviation.
Intuitionally the method of ARIMA can also be applied to this forecasting for the smaller RMSE
and forecasting deviation. We can find that the residuals are random based on residual randomness
testing result (for the non-zero P-values). Accordingly, ARIMA is a good model that can be used to
forecast Amazon quarterly sales in 2013.

Sensitivity Analysis
Before selecting which model to adopt, Amazon will also want to know which of these forecasts are
more sensitive to small changes in the data. This is important because Amazon will want to know how
their chosen forecast method will react to slight changes in sales. For this section, the 2013 sales will
adjust upward and downward slightly. The forecast methods that return a greater variance for future
forecasts based on the adjustments to the sales in 2013, which will be judged to be more sensitive to
changes in the data.
Specifically, Amazons sales will be forecasted for 2014 to 2016 for three cases: 1) after decreasing
sales by 2 percent for each quarter of 2013, 2) after increasing sales by 2 percent for each quarter of
2013, and 3) after keeping 2013 sales the same, which will be referred to as the base forecasts. To
accomplish this, 12 forecasts will be taken. The first four forecasts will be summed to determine the
forecasted annual sales for 2014, and so on. The variance between forecasts for the two percent
decrease and increase will be used to determine the sensitivity of the forecast.
Sensitivity Analysis of Winters Model
Table 5 shows the annual forecasts for 2014 through 2015 using Winters Exponential Smoothing.
The total variance in sales between the 2 percent decrease and increase is $26.8 billion.
Table 5. Annual forecasts for 2014 through 2015 using Winters Model ($000).

2014 2015 2016 2014-2016

-2% 84,530,400 95,791,000 107,051,500 287,372,900
Base 87,477,400 100,330,500 113,183,800 300,991,700
2% 90,334,000 104,727,900 119,121,800 314,183,700
Variance 5,803,600 8,936,900 12,070,300 26,810,800

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Sensitivity Analysis of Time-Series Decomposition Model
Table 6 shows the annual forecasts for 2014 through 2015 using Time-Series Decomposition with a
Box Jenkins Adjustment. The total variance in sales between the 2 percent decrease and increase is
$32.7 billion.
Table 6. Annual forecasts for 2014 through 2015 using Time-Series Model ($000).

2014 2015 2016 2014-2016

-2% 84,946,660 94,957,460 102,482,220 282,386,340
Base 88,305,940 100,491,520 110,507,360 299,304,820
2% 91,489,970 105,655,830 117,995,200 315,141,000
Variance 6,543,310 10,698,370 15,512,980 32,754,660

Sensitivity Analysis of ARIMA Model

Table 7 shows the annual forecasts for 2014 through 2015 using the ARIMA model. The total
variance in sales between the 2 percent decrease and increase is $32.9 billion.
Table 7. Annual forecasts for 2014 through 2015 using ARIMA Model ($000).

2014 2015 2016 2014-2016

-2% 86,175,800 102,635,900 122,829,900 311,641,600
Base 89,617,800 108,076,000 130,473,100 328,166,900
2% 93,059,900 113,497,500 138,063,500 344,620,900
Variance 6,884,100 10,861,600 15,233,600 32,979,300
Overall, it appears that the Winters Exponential Smoothing forecast is the least sensitive to
changes in the data, while the Time-Series Decomposition with the Box Jenkins adjustment forecast
and the ARIMA model forecast are similarly sensitive to changes.
We found the Time-Series Decomposition with a Box Jenkins Adjustment and the ARIMA model
were more sensitive to changes in the data, they may be more likely to pick up on small changes in the
data that do impact future sales, and therefore, possibly provide more accurate forecasts. However, as
mentioned above, if the small changes will not impact future sales, then these models are less likely to
be accurate. Since the Winters Exponential Smoothing model is less sensitive to changes, it may be
less quick to react to changes in the data. However, since it is less sensitive, it may also be the best
model to predict sales at Amazon for more than a couple of years in advance.

Implementation for Amazon

Three methods were used to forecast the quarterly sales of Amazon in 2013, then we compared the
forecasting results with the actual data and find the three best methods to do the sales forecasting for
AmazonWinters, Time-Series and ARIMA, among which improved Time-Series is strongly
recommended to do the forecast for the smallest RMSE. The result of above three methods to forecast
quarterly sale of Amazon in 2014 is shown in the Table 8.
Table 8. Quarterly sales forecasts for Amazon in 2014 ($000).

Winters' Time Series ARIMA

Q1/14 19,251,800 18,578,000 19,925,600
Q2/14 18,300,500 17,576,700 19,024,300
Q3/14 19,688,400 18,779,200 20,597,600
Q4/14 30,236,700 28,614,100 31,859,200

Actually, we found the real sale in different quarter in 2014 is $19,741million, 19,340 million,
20,579 million and $29,328 million in Amazon web site, which demonstrate above three methods can
all be used for the sale forecasting for Amazon due to small deviations.

68
 However, from the practical operation management of Amazon, its very much important to
forecast the sales in the fourth quarter, because of the greatly expanded demand compared with other
three quarters. In this respect, after comparing we found the improved Time Series approach is more
suitable because the forecasting deviation is only 2.4% compared with the real sales. Thus this result
reflects the same forecasting accuracy as show in the forecasting part, in which the RMSE is the
smallest under the method of Time Series Decomposition (Improved).

Conclusion
In this paper, we analyze three methods to forecast sales for Amazon based on the historical data. The
results show that all above three methods can be put into practice to forecast sales for Amazon, and
the sensitivity of Winters Exponential Smoothing is less than the other two methods. Based on the
forecasting result, Amazon can have a big picture of the demand and then to take relevant measures to
arrange resources, such as hiring more employees, storing more items or expanding shipping
capacity, and thus to offer good service to improve customer satisfaction.
Though, the forecasting error (RMSE) of the above three methods is very small and can be applied
to the forecast of Amazon sales, there are still some obstacles to using these methods as follows. One
major obstacle impeding the implementation of the forecast is the necessary data to precisely carry
out the forecast. Amazons quarterly sales are influenced by many diverse factors, such as population,
disposable household income, interest rate, macroeconomic trend and so on.

Acknowledgement
This research was financially supported by the National Science Foundation (71471084).

References
[1] D.Y. He, L. Luo, An improved winters model for airline demand forecast. Journal of
Transportation Systems Engineering and Information Technology, 6(2006), 103-107.
[2] S.G. Makridakis, S.C. Wheelwright, Forecasting Methods for Management, 5th Edition, Wiley,
(1989).
[3] E. Bouding, Times Series Analysis: Forecast and Control. New York: Prentice Hall Inc, (1994).
[4] P.A. Butler, Prior information and ARIMA forecasting. Journal of Forecasting, 1(1982),
375-383.
[5] L. Bianchi, R.C. Hanumara, Improving forecasting for telemarketing centers by ARIMA
modeling with intervention. International Journal of Forecasting, 14(1998), 497-504.
[6] J.N. Xue, Z.K. Shi, Short-time traffic flow prediction based on chaos time series theory. Journal
of Transportation Systems Engineering and Information Technology, 8(2008), 68-72.
[7] Zou P, Yang J S, Fu J R, et al. Artificial neural network and time series models predicting soil salt
and water content [J]. Agricultural Water Management, 2010, 97(12): 2009 - 2019.
[8] L. Zhou, X.L. Yong, Electricity demand forecasting based on ARIMI model and linear neural
network. Journal of Ludong University (Natural Science Edition), 31(2015), 277-282.
[9] Y.Y. Fan, Research on product demand forecasting model for demand chain under e-business.
Harbin Institute of Technology, (2008).
[10] Y.F. Tang, Dynamic demand forecasting of fresh agricultural products in e-commerce
circumstance. Nanjing University, (2014).
[11] Q. Zheng, Taobao how to deal with the shopping event of NOV 11 of 2015. The Journal of
ideological front, 41(2015), 26-28.
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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Discussion on Fostering New Competitive Advantage of Chinas

Foreign Trade Enterprises in the Post Economic Crisis Era

Xin CHENG
Jiangsu Institute of Commerce, Nanjing, Jiangsu 211168, China

Keywords: Post economic crisis era, New normal economy, Foreign trade enterprises, Competitive
advantage.

Abstract: The global economy is presently in the post economic crisis era. Meantime, Chinas foreign
trade has entered a new stage in the wake of new normal of Chinas economic development. Under
the current situation at home and abroad, the foreign trade enterprises are confronted with new
opportunities and challenges, thus how to seize the opportunity, steadily enhance the competitive
capacities and push the development towards larger scale has become the focus of attention in the
domain of foreign trade and economy. This thesis presents thoughts on the development of Chinas
foreign trade enterprises in the post economic crisis era, puts forward sustainable development
strategy, brand building strategy and talent cultivation strategy, and meanwhile makes corresponding
analysis and description.

Guidelines
At present, the global economy is in the post economic crisis era. Meantime, Chinas economy, after
many years rapid growth, has entered a new normal stage, i.e. from rapid growth to steady growth
in economic growth; from low-and mid-end to mid-and high-end in economic structure; from
traditional growth point to new growth point in development driving force. However, the world
economy is in the post economic crisis eras profound adjustment period; the general economic trend
is excess of supply over demand with the slow overall growth; due to the depression of global
economy, some countries take measures to protect their national industry one after another, during
which the trade conflicts against China are continuously on the increase. In the face of new situation
and challenges, Chinas foreign trade enterprises certainly will carry out corresponding reforms
regarding development strategy, so as to truly promote their international competitiveness.

Strategies to Foster New Competitive Advantage of Chinas Foreign Trade Enterprises

Sustainable Development Strategy

During quite a long time in the past, Chinas exports had served the imports; therefore, the
development of exports was greatly influenced by the import factors; the demands for earning foreign
exchange through export urged the implementation of quantity-based mode of Chinas export,
characterized with high income, high consumption and low benefit, which resulted in the waste of
resources, pollution of environment and the weakening of further development capacity, and resulted
in certain harmful effect to the further development of Chinas foreign trade; therefore, this kind of
old normal state cannot be maintained.
As the non-tariff barrier form, the green trade barrier has imposed great influence on the
development of Chinas foreign trade; Chinas foreign trade enterprises shall fully understand its
severity and meanwhile its opportunities for us. With the enhancement of peoples environmental
awareness, the enormous green market constituting by green products, production technologies
concerning green products and relevant services provides new opportunities for international trade.
Chinas foreign trade enterprises shall firmly reverse the conventions of occupying international
market by low quality and low price, timely grasp the new technical requirements and trade policies
70
of trade partner countries, devote greater efforts in technological breakthrough, and meanwhile
reinforce the international technical cooperation and exchange, establish the concept of long-term
sustainable development, and finally step over all kinds of trade barriers. For the purpose of exporting
our products to these countries, we must be serious about these trade barriers.
With respect to Chinas foreign trade enterprises, they shall make every endeavor to improve their
own qualities, devote greater efforts in technological transformation, elevate the product level &
performance, actively carry on the product certification and comply with the internationally accepted
quality safety control system, adapt the ever-changing certification procedures and ever-improving
technical standard abroad and achieve full connections. Our foreign trade enterprises shall establish
the whole-process monitoring system of bulk production, so as to realize the standardized production
& management of any link in the whole industrial chain, elevate the market competitiveness of
products, and lay the foundation for products smooth entry into international market. Currently, the
quality system certification has become the world trend; therefore all the countries strive to draw close
their quality system certification to international standard and obtain the universal recognition
internationally, so as to break the green barriers. Chinas foreign trade enterprises shall intensity the
certification of product quality to realize the improvement of product quality.
Meanwhile, we shall vigorously develop the green products and elevate enterprises capability of
independent innovation. The development of green products is the key point of responsibilities
performed by enterprises, and the supporting point of green marketing. In the course of developing
green products, the enterprises shall implement green production, green brand and green package with
green demands as orientation; that is to say, the enterprises shall carry out cleaning production in
terms of product production, and the product package shall comply with the requirements of being
recycled and biodegradable. The key of getting used to New Normal lies in the formation of new
economic growth impetus, while the key of forming new economic growth impetus lies in the
innovation. Therefore, Chinas foreign trade enterprises must have the awareness of innovation to
proceed product innovation, develop new market, and carry out the innovation of production
organizational mode and process, thus increasing the utilization efficiency of resource factors,
devoting greater effort in research & development input, promoting the conversion of technological
achievements, enhancing the additional value of products, producing the quality-safe and
international standard products and obtaining the optimum benefits in economy, society and ecology.
Brand Building Strategy
A brand represents the strength, reputation, innovation capacity and service characteristics of a
foreign trade enterprise. To some extent, a brand represents the core competitiveness and overall
market image of a company. Under the background of new normal economy, Chinas foreign trade
enterprises shall combine the short-term interest with long-term interest, strengthen the awareness of
brand innovation & protection, elevate their own core competitiveness, and accelerate the cultivation
of unique management manner & enterprise image; the benign competition in service & innovation
based on mutual respect and development shall be carried out among different parties, so as to strive
for the high-quality brand. For a long time, many Chinas foreign trade enterprises have been engaged
in processing on giving materials, processing on giving samples, and manufacturing products with
appointed trademarks, while the foreign counterparts were engaged in the research & development.
The international industries are being transferred to developing countries, but the market is in their
hands and the brand is in their hands; therefore, even though our quality is better and better, what we
can get is just the processing charges.
With the acceleration of economic globalization and trade liberalization process, all countries in
the world are establishing their own famous-brand products; the brand building is a magnificent
career. In the economic field, a brand is a kind of intellectual property; in the social field, a brand is a
systematic engineering participated in coordination and operation by whole society. The
entrepreneurs who have undergone market economy tide increasingly understand the enormous
economic & social effects contained in brand. Some famous brands make people impressive; for

71
example, when it comes to the Nestle coffee, people will immediately praise delicious; the success
of Nestle coffees brand strategy originated in their whole industrial chain established for guarantee of
product quality, i.e. top-quality green coffee tree, incomparable barbecue & grinding technology, rich
style and convenient & fast innovative design, etc. Without exception, the successful brand products
indicate people that the product quality level (high or low) should be an important measurement for an
enterprise even a countrys national economic power to rule the roost of domestic & overseas market.
Looking around the world, all the famous trademarks and well-known trademarks have clear value
and gold-containing code, which are continuously increasing with the enhancement of reputation and
creditworthiness for enterprise and products.
Brand capital is the core factor for successful enterprises, and the enterprises can be more capable
of controlling their own fate if they establish the true and long brand capital. For Chinas foreign trade
enterprises, the most effective way to build brand is to learn from those leading industrial champion in
a down-to-earth manner, find out the distinctive brand positioning, implement the long-term, stable,
scientific and practical brand strategy, and confirm the enterprises target customer, namely, take over
the leading position through enterprises core competitiveness in certain field, thus firmly occupying
one link of the whole industrial chain. For this purpose, it requires us to have further views and seek
for breakthrough from thinking way. The research on enterprises development strategy shall be on
the side of global market and industrial development trend rather than being limited to the enterprise
itself.
In addition, brand building is an important strategy in the development of Chinas foreign trade
enterprises. Since it is in the strategic level, it means that this will be an arduous and complicated
work, which cannot be accomplished in a short duration of time; furthermore, it is not a temporary
expedient to just solve those surface-level problems. Therefore, the foreign trade enterprises must
have sufficient understanding with enduring and systematic faith, and promote the development of
brand career taking advantage of all social powers, e.g. government powders, etc., and combining the
work in all aspects, e.g. system reform of enterprise, etc., thus making a brand development in a
deeper way. In perspective of the present reality, enterprises shall formulate a brand management plan
against the background of enterprise development strategy. In the development stage of brand, the
enterprises, taking the brand as guidance, shall carry out the asset reorganization and scale expansion,
so as to realize the expanded brand cohesion, boost the enterprise development and create the world
class brand. Moreover, enterprises shall make decisions carefully through widespread and profound
investigation, invest the enterprises resources to the industries with development potential, and make
the brand development full of hope.
Brand is the dragon-head and backbone of national industry, the mark of a countrys industry, the
embodiment of a countrys national economic development level as well as the symbol of economic
strength. Although Chinas foreign trade enterprises have achieved some progresses in the brand
building and accumulated some experience, there is still a long distance from the world level; for
example, some depth problems remain to be solved, the brand awareness remains to be enhanced, and
the management concepts remain to be updated.
Talent Cultivation Strategy
In the international market with fierce competition, the competition of foreign trade enterprises is
ultimately the competition of talents, and the key of talent competition lies in the true talent, who
shall have good working attitude, healthy personality, excellent psychological quality, enduring
working enthusiasm, hard-bitten willpower, all-embracing open attitude, interpersonal
communication & coordination skills and the team-work spirit, etc. The acquisition of true talent is
only based on scientific measurement tools and methods. Such scientific methods in general use
abroad as intelligent measurement, personality assessment and assessment center shall become the
important means to develop human resources for foreign trade enterprises, thus making the talent
recruitment based on scientific foundation. With the aggravation of market competition, those
highly-competent people having good knowledge of products professional knowledge and

72
international economy & trade and business English are becoming the sweet pastry attractive to
foreign trade enterprises; meanwhile, many enterprises release the preferential measures in talent
recruitment, such as high salary, share donation and other benefits. Therefore, it is a matter of great
urgency for foreign trade enterprises to retain and attract talents; the entrepreneurs shall put the
stabilizing excellent talents on the important agenda, and formulate the protective measures in
accordance with the interests of enterprises and employees.
The leaders of foreign trade enterprises shall attach importance to talents. No matter how to
delegate power to the lower levels, the personnel direction rights are still in the hands of enterprise
leaders; therefore, leaders attention to talents is closely related to enterprises future development.
Proper use of talents can not only give play to employees enthusiasm and potential ability, but also is
the key to retaining talents. For above reason, discovering able people and putting them at suitable
posts is distinctly important. So the enterprises are required to adhere to the principles of fair and
open in talents recruitment, selection, training, assessment, promotion and awards, introduce the
competition & supervision mechanism, and make the best use of talents. Besides, emotional
involvement shall be reinforced to shape the overall enterprise spirit. Only a person with spirit can
achieve continuous improvement; similarly, only an enterprise with enterprise spirit can continuously
flourish and grow. The so-called enterprise spirit refers to the common ideas of enterprise employees,
which is like a strong lever to move the enterprise forward. All successful enterprises believe that
enterprise is a big family. The development of foreign trade enterprises depends not only on good
mechanism and scientific management, but also more on the advanced enterprise culture and
excellent employees edified in this culture.
Of course, it is essential to make talents value recognized through various incentive measures.
Wages and welfare are the most important incentives, so enterprises should take seriously and solve
the problems of incentive mechanism. For a long time, enterprises methods to motivate employees
working enthusiasm have resulted in a kind of thought inertia that the vital interests and working
achievements were not closely related, which gave rise to the insufficiency of impetus. However, the
entrepreneurs need to know that it will be difficult to attract talents without good incentive
mechanism, let alone making good use of the talents. Hence, the enterprises shall provide various
talents with a platform to give play their abilities, retain talents through a perfect incentive
mechanism, and present the excellent talents with certain sense of achievement.
Meanwhile, sound training mechanism shall be in place. All the employees of foreign trade
enterprises shall have a good knowledge of the development with times concerning products &
industry and the latest trade situation at home and abroad. In another word, training for employees
must become a regular practice and be systematized. Chinas foreign trade enterprises could take full
advantage of various forms to carry out employee training, which shall lay emphasis on training
contents and training level; multi-channel & multi-form training shall be carried on within industry as
per enterprises actual needs, thus improving employees culture, business skills and professional
dedication. Besides, HR department shall seek for the optimum allocation of personnel according to
the employees characteristics and potentials. Making good use of personnel is the key to success of a
foreign trade enterprise. For those employees who temporarily cannot be qualified to work, the
enterprise shall not put them in another side; instead, the enterprise can change a post for them and let
them have more tries as much as possible. In many cases, the employees unqualified for certain post
can find their place after position change, and act as well as others.

Conclusion
In the post economic crisis era, the new competitive advantages of Chinas foreign trade have not yet
formed, and during a period of time in the future, the growth rate of Chinas import and export trade
will stay at a relatively stable status. For this reason, Chinas foreign trade enterprises have the
necessity to conduct active reform of development strategy, speed up the cultivation of new

73
competitive advantages, and provide new impetus to Chinas development of foreign trade and
economy.

Acknowledgement
This research is sponsored by Jiangsu Qing Lan Project.

References
[1] G Gereffi, S Frederick. The Global Apparel Value Chain, Trade and the Crisis: Challenges
and Opportunities for Developing Countries, Policy Research Working Paper, 2010(4).
[2] G Jones. Business Enterprises and Global Worlds, Enterprise & Society, 2002, 3(4).
[3] J Ben-Ur, J Wang. From made in China to global Chinese brand. Journal of International
Business & Economics, 2008, 8(3).

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

And What About Social Media?

Chukri Akhras
Professor of Management Information Systems Lebanese International University, Lebanon

Keywords: Social media, Internet, Social network, Word of mouth, Electronic word of mouth,
Consumer behavior.

Abstract. The target of this research is to figure out whether online word of mouth affects buyers
purchasing choice contrarily or emphatically. Primary information is gathered from 60 randomly
selected graduate business students in a private Lebanese university. The gathered data is then
analyzed. In conclusion, it is uncovered that for the most part buyers trust word of mouth. Moreover,
results show two things that can demotivate the purchasing of certain products: an intense experience
of any item/benefit and negative verbal remarks. Customers today are influenced by word of mouth.
Whether customers live in the developing or the developed world, customers are influenced by what
is being said about products or services.

Introduction
It has been shown that publicizing significantly affects the customer purchasing behavior process [1].
Verbal exchange, especially Word of Mouth, highly affect shoppers purchasing choices [1, 3]. Before
the social media, Word of Mouth simply did not travel extremely far [4, 5]. Presently, online social
media gives word of mouth wings [4]. The effect of online networking on mindfulness, brand states
of mind, and social standards is so solid we frequently allude to viral showcasing or buzz advertising
to reflect strategies intended to fortify positive informal communication [4]. Word of a Mouth is one
of the basic methods of circulation. Word of a Mouth can impact others perspectives, considerations,
and/or their choices [5,7]. On the off chance that informal force used accurately could showcase any
item or benefit for a long time. Word of mouth has the ability to create solid pictures in listners minds.
Word of a Mouth could be advantageous and cruel [8]. Local markets influencers, trendsetters and
tastemakers are supported by the word of mouth marketing process. Moreover, word of mouth also
facilitates advertising messaging campaign to be released. The word of mouth marketing campaigns
are connected with influencers and trendsetters who help to begin consumer trends such as consumer
products trends, automobile purchase trends, entertainment trend, fashion trends, and beverage
consumption trends [12, 13]. Then, word of mouth is very valuable having twice as much value as any
other method for consumer. By advertising, we all are captured in the world all day and night [11, 12].
Word-of-Mouth (WOM) is the essential element behind 20% to half of all obtaining choices. Its
impact is most prominent when purchasers are buying an interesting item or when items are generally
costly since individuals would engage in more research, look for more feelings, and ponder longer
than they generally would [9, 13]. Moreover, the WOM impact will presumably develop in light of
the fact that the advanced insurgency has enhanced and quickened its range to the point where
informal exchange is no more a demonstration of close, one-on-one correspondence [4]. Today,
according to Bughin, Doogan, and Vetvik: WOM also operates on a one-to-many basis [4]. That is,
product reviews are posted online and opinions are disseminated through social networks. Some
customers even create Web sites or blogs to praise or punish brands [4].

Theoretical Background & Hypothesis Development

Clients today see less genuine item contrasts and show less brand faithfulness, and they are turning
out to be more cost and quality sensitive in their quest for value [14]. In a rush, customers are prone to
incline toward more internet shopping. At the point when customers buy a few items by web retailing,
they can look at the website nature of others. Various studies have endeavored to distinguish

75
components prompting internet shopping business achievement, underlining client esteem creation
[15], web-based customer management [16], e-business service quality improvement [17], customer
retention [18]. Be that as it may, analysts have given careful consideration to the combination of these
variables into a complete model [13]. Such an incorporated methodology is likewise ailing in the
investigations of Lebanese university students internet customers. Previous studies [19] examined the
relationship between customers esteem and repurchase expectation utilizing customized, feeling, and
trust based variables. Atchariyachanvanich et al. (2008) analyzed why internet shoppers proceeded
with internet acquiring, concentrating on buyer advantages. Hahn and Kim (2009) inspected how
internet buyer trust and sureness sway internet shopping desire. Kim et al. (2008) perceived essential
determinants of online customer devotion. In spite of the way that these concentrates overall
portrayed general Internet clients, they fail to propose an exhaustive model for internet shopping
business achievement by associating purchaser reliability and upkeep using existing information
systems and marketing information [8].
This study attempts to evaluate the level of trust of private Lebanese university students in the
information provided through WOM on social media and networks. Inside these social media, it is
basic for people to give and get data and casual counsel on items and administrations. This is usually
referred to as electronic word-of-mouth (eWOM), which is conceptualized as any positive or
negative statement made by ... [an individual] ... which is made available to a multitude of people and
institutions via Internet [20]. In contrast, word-of-mouth (WOM), the precursor to eWOM, may be
defined as person-to-person, oral communication between a receiver and a sender [10]. In this
correspondence, the source is seen as a non-business message that identifies with a brand, item or
administration.
Given the disparate tie qualities among people, two diverse sorts of eWOM grow specifically
eWOM in-group (among family and friends) and eWOM out-of-group (among individuals not
belonging to someones social surrounding). As a matter of fact most eWOM is developed within the
out-of-group circle.

Electronic Word-of-Mouth
Taking into concideration the connectivity nature of the Internet, consumers and university students
in particular can easily interact and exchange shopping experiences with other consumers using
online discussion forums or any other social network technologies. Online buyer surveys represents
another type of electronic word-of-mouth. Like customary word-of-mouth communication, eWOM
alludes to any positive or negative proclamation made by potential, genuine, and previous clients
around an item or an organization [12]. eWOM is particularly critical to the Internet buying choice
due to the measure of possible danger. Numerous potential Internet customers tend to wait and watch
the encounters of others. Past examination proposed that data from outer sources can upgrade buyer's
trust in their convictions or demeanors toward some article through disguise process.
In the current study, it is believed that if a potential online shopper finds the online consumer
review supports what he/she has already believes about online shopping in a particular online vendor,
his/her confidence about the beliefs would be enhanced and exhibited a stronger impact on his/her
attitude, as well as later behavior. Therefore, the following hypothesis is postulated:
How does electronic word of mouth on social media impact the individual buying decision? The
case of private Lebanese university students.
Our hypothesis is based on the assumption that Lebanese students at a private university have
access to the Internet and they are knowledgeable enough to use the Internet to buy some products.
The study will try to show that electronic Word Of Mouth (Independent Variable) leads to a change
in the consumer purchasing decision (Dependent Variable).

Research Design & Methodology Used

The research design is the plan for satisfying goals and noting questions. Selecting a configuration
might be entangled by the accessibility of an expansive assortment of strategies, methods, systems,
76
conventions, and examining plans. For instance, researchers may choose an optional informative
study, contextual investigation, surveys, test, or reproduction. In this paper, a well-designed
questionnaire was exercised. The questionnaires formation was structured, and the six questions
were properly formulated and consigned. Dichotomous scale was used to elicit a Yes or No answer.
Dichotomous was the only rating scale form used in the questionnaire. The core advantage of this is
that within a short period of time all questions were answered and the questionnaire was collected and
the primary data was gathered.

Sampling Design
Random sampling technique was used in this study. In the random sampling process, every element
of the population has an equal chance to be selected as a subject. In order to collect reliable data for
analysis, every individual was requested to answer all the questions. The questionnaires were directed
to 60 graduate students constituting the sample size.

Discussion
The paper finds that half of the participants' trust information submitted to social media (see Table 1).
75% of the respondents purchasing decision may be based on social media information (see Table 2).
85% may change their mind about a product/service after reading about on social media, while 15%
will not be affected (see Table 3). We find that 60% of the targeted sample will be affected by other
customer reviews submitted socially (see Table 4). Students are 90% influenced by their family and
friends over salesperson (see Table 5). Students are sure 100% that eWOM will be the most effective
future marketing form (See Table 6). After evaluating the data, we can conclude that social media
impacted individual purchasing decision.
Table 1. Do you think information on social media can be trusted?
Frequency Percentage
YES 30 50%
NO 30 50%
TOTAL 60 100%

Table 2. Will you make a buying decision based on information you read on social media?
Frequency Percentage
YES 45 75%
NO 15 25%
TOTAL 60 100%

Table 3. Have you ever changed your mind about a product/service after reading about it on the social media?
Frequency Percentage
YES 51 85%
NO 9 15%
TOTAL 60 100%

Table 4. Will the online customer reviews affect your opinion of a local business or about a certain product?
Frequency Percentage
YES 36 60%
NO 24 40%
TOTAL 60 100%

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 Table 5. Do you trust friends and family over salespeople?
Frequency Percentage
YES 54 90%
NO 6 10%
TOTAL 60 100%

Table 6. Do you think eWOM will be the most powerful and effective form for businesses in the long-run?
Frequency Percentage
YES 60 100%
NO 0 0%
TOTAL 60 100%

Conclusion
The main objective of this study was to find if eWOM impacted students buying decision positively
or negatively. The results show that businesses should be aware of word of mouth on social media
because it has been noticed that individual decision could be affected by eWOM. Impact of word of
mouth on marketing arises due to social media where people see the comments of the people who
shopped. Students see whether or not it would be effective for them to buy recommended items. So
marketers become aware of consumers choices and marketers try to improve or produce better
quality in order to sustain customer loyalty. The fact stands that bad impressions of any
product/service can be created by one bad effect, but positive word of mouth can create a magical
impression or image of products/services.

Recommendation
From the study conducted, a number of suggestions are put forward. First, consumers should not
blindly trust word of mouth campaigns. Rather consumers ought to also listen to other social media
channels as newspapers, magazines, television and the internet. Second, before purchasing any
expensive or luxury item, consumers must research word of mouth. Third, consumers should share
their experiences which they gained from WOM. Fourth, consumers should share their opinion about
any products or services.

References
[1] Assael, H. Consumer Behavior and Marketing Action. Cincinnati: South-Western College
Pub. (1992).
[2] Balter, D. Introduction to BzzAent: Word of Mouth. (2004).
[3] Berkman, H. W., & Gilson, C. G. Consumer Behavior: Concepts and Strategies. California:
Dickenson Publishing. (1978).
[4] Bughin, Jacques; Doogan, Jonathan, and Vetvik, Ole Jrgen, A new way to measure word-of-
mouth marketing, McKinsey Quarterly, (April) (2010). 9p.
[5] C.M.K. Cheung, M.K.O. Lee, N. Rabjohn, The impact of electronic word-of-mouth: the
adoption of online opinions in online customer communities, Internet Research, 18 (3), (2008). pp.
229247
[6] Deborah H. Lester , Andrew M. Forman & Dolly Loyd, Internet Shopping and Buying
Behavior of College Students, Services Marketing Quarterly, 27:2, (2008), 123-138, DOI:
10.1300/J396v27n02_08

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[7] Engel, J. F., Blackwell, R. D., & Miniard, P. W. Consumer Behaviour (8th Edition ed.).
Chicago: Dryden Press. (1995)
[8] J. Palmer, V. Eidson, and C. Haliemun, "Predictors of Positive and Negative Word of Mouth
of University Students: Strategic Implications for Institutions of Higher Education" ijbssnet.com, vol.
2, no. 7, (2011). pp. 59-63.
[9] John Fong Suzan Burton, "Online word-of-mouth: a comparison of American and Chinese
discussion boards", Asia Pacific Journal of Marketing and Logistics, Vol. 18 Iss 2 (2006), pp. 146
156.
[10] Jos Lus Abrantes Cludia Seabra Cristiana Raquel Lages Chanaka Jayawardhena, "Drivers
of in-group and out of-group electronic word-of-mouth (eWOM)", European Journal of Marketing,
Vol. 47 Iss 7, (2013), pp. 1067 1088 Permanent link to this document:
[11] Kim, C., Galliers, R. D., Shin, N., Ryoo, J., Kim, J., Factors influencing Internet shopping
value and customer repurchase intention, Electronic Commerce Research and Applications, 11 (4),
(2012), 374-387.
[12] WALLACE, Dawn et al, Do Word Of Mouth And Advertising Messages On Social Networks
Influence The Purchasing Behavior Of College Students? Journal of Applied Business Research
(JABR), [S.l.], v. 25, n. 1, Jan. 2011. ISSN 2157-8834. Available at:
<http://www.cluteinstitute.com/ojs/index.php/JABR/article/view/1052/1036>. Date accessed: 26
may 2016. doi:http://dx.doi.org/10.19030/jabr.v25i1.1052.
[13] Wang, Jeff, and Xiao, J. J. Buying behavior, social support and credit card indebtedness of
college students. International Journal of Consumer Studies, 33(1), (2009), 2-10
[14] Jason M. Carpenter, Marguerite Moore, "Consumer demographics, store attributes, and retail
format choice in the US grocery market", International Journal of Retail & Distribution Management,
Vol. 34 Iss: 6, (2006), pp.434 452
[15] Francis, J., and White, L., Value across fulfillment-product categories of Internet shopping,
Managing Service Quarterly, 14, 2/3, (2004), pp: 226234.
[16] Santouridis, I., Trivellas, P., and Reklitis, P., Internet service quality and customer
satisfaction: examining Internet banking in Greece. Total Quality Management, 20, 2, (2009),
223239.
[17] Boshoff, C., A psychometric assessment of eS-Qual: a scale to measure electronic service
quality. Journal of Electronic Commerce Research, 8, 1, (2007), 101114.
[18] Khalifa, M., and Liu, M., Online consumer retention: contingent effects of online shopping
habit and online shopping experience. European Journal of Information Systems, 16, 6, (2007),
780792.
[19] Joo, J., An empirical study on the relationship between customer value and repurchase
intention in Korean Internet shopping malls. Journal of Computer Information Systems, 48, 1, (2007),
5362.
[20] Hennig-Thurau, T., Gwinner, K. P., Walsh, G. and Gremler, D. D, Electronic word-of-mouth
via consumer-opinion platforms: What motivates consumers to articulate themselves on the Internet?
J. Interactive Mark, 18: (2004), pp: 3852. doi: 10.1002/dir.10073

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Cross-Culture Diffusion Issues Under the Concept of

The Belt and Road
Chen-jia WANG*
School of Foreign Languages, Northwest University, Xian 710127, China.
*Corresponding author

Keywords: Cross-culture diffusion, Traditional Chinese culture, The belt and road, Domestication
VS foreignization, Culture dimension framework.

Abstract. Alongside the initiation, planning and implementation of The Belt and Road proposal,
the culture diffusion of China under this concept should be promoted immediately. As different &
diversified of culture, the only bridge to meet culture gap and facilitate cooperation of The Belt
and Road countries and regions is cross-culture communication. Culture diffusion is the
proposition and ground of the Belt and Road proposal. The underlying cause of communications
conflict lies in core thoughts difference of culture. Based on discussion and analysis in culture
dimension theory, the strategy has been raised to improve the communication performance. China is
on its way to enter the world discourse power system.

Introduction
Ancient Silk Road has been the most prospering period of China history. The countries and regions
along the Silk Road communicated with each other, learned from each other and supply each other's
needs, accelerated the human being's civilization together. President Xi Jinping has pointed that
countries with different races, beliefs & values, diversified culture background could co-develop
and live peacefully together (2013). How could China realize the fusion of different culture beyond
the geographic boundaries and revive the brilliance of traditional Silk Road? Called by the The
Belt and Road implementation, the Chinese Culture should go out and communicate with the
outside world confidently. Such culture diffusion issues should be discussed, illustrated and further
explored.

The Conflict Between Domestication and Foreignization of Translating The Belt and
Road in Cross-culture Communication Perspective
Since proposed in 2013, there are many different renderings, such as the Belt and Road, Belt and
Road is literal translation; while land and maritime Silk Road programs and a revival of the
ancient Silk Road are free translation.As time goes on, the translation shifted under different
stages. In year 2015, National Development and Reform Commission, Ministry of Foreign Matters,
Ministry of Commerce of P.R.C confirmed translation of The Belt and Road, full name as the
Silk Road Economic Belt and the 21st-Century Maritime Silk Road, abbreviated as B&R, the
Belt and Road, could be flexibly rendered as initiative if mentioned at its proposal stage. To sum
up, from proposal to planning, till execution stage the public awareness &recognition of the Belt
and Road is increasing gradually.
The change of the translation and public awareness could be analyzed and clarified from the
angle of domestication VS foreignization. The different rendering of The Belt and Roadreveals
the deep conflict between domestication and foreignization in cross-culture communications (Zhu
Anbo 2009). Domestication is oriented by the preference of target language, attempts to use the
fluent target language to express the idea of source language to facilitate comprehension of target
readers in the maximum extent. Whereas the foreignization is struggling to keep the exotic flavor
of original paper, which might make the target readers feel strange, but transmit the original style.
As summarized before, from proposal to planning, till execution stage, the public awareness

80
&recognition of the Belt and Road is progressing step by step. Equally, the translation is also
experience the literal
free
literal translation (B&R), expressing the strategic progress from
foreignization
domestication
foreignization correspondingly.
Therefore, shall we approach the source language culture or the target language culture while
confronting cross-culture communications? The decision might be figured out through exploring the
original culture difference in terms of cross-cultural communication theory.

Cross-Cultural Diffusion under Concept of The Belt and Road in Culture Dimensions
Theory
Hofstede's cultural dimensions theory is a framework for cross-cultural communication, which
illustrating the effects of a society's culture on the values of its members, and how these values
relate to behavior, using a structure derived from factor analysis. Hofstede's framework has been
applied and tested in many fields relating to international business and communication, deeply
influencing culture diffusion (Hofstede,1997). The three dimensions applied in context of the belt
and Road are discussed as followed:
Individualism vs. Collectivism (IDV)
This dimension explores the degree to which people in a society are integrated into groups. They
emphasize the I versus the we. Its counterpart, collectivism, describes a society in which
tightly-integrated relationships tie extended families and others into in-groups.
Regarding the index, there is a clear gap between Western countries on one hand, and Eastern
countries on the other. It seems that the western cultures and eastern cultures are on the opposing
directions and these two different approaches can be traced back to their different civilization
origins. Western culture is related closely with the Greaco-Roman civilization. Harsh environment
such as mountain geography imposed its habitant strong individualism, stressing the people to
fight against nature and harsh surroundings, while, pays little attention to the authority. On the
other hand, Chinese people consider that human being should Make every effort to accomplish
things but abide by the nature destiny. (Li Mengyu, M.H, 2011) Besides, authority should be
respected and admired, people should make achievement as the member of the group.
Collective features are reflected in many aspects of Chinese culture. There are quite a lot
marvelous examples of Chinese proverbs such as A fence has three pile, a real man has three gang.
Unity is strength.. However, western proverbs has apparent individual traits such as the squeaky
wheels get the grease, God helps those who help themselves. Based on the comparison above the
striking distinction could be observed.
With individual rights severely subordinated, group action has been the distinctive characteristics
of Chinese society. The root cause of Collective dimension is traditional Chinese value and
Confucianism over thousands year. As Founder of Confucianism, Confucius mentioned that if one
wants to establish himself, he should help others to establish themselves. After China carried out the
policy of reform and opening up in 1978, traditional Confucianism ideology has been challenged a
lot. While the strong sense of collectivism still plays the dominant role in Chinese daily life. Most
people believe or are instructed to believe they should make contributions to his/her
family/group/society.
Nowerdays the opposing ideas of Individualism vs. collectivism could be observed in family
education as well. The distinction lies in the difference of deep-rooted values and beliefs between
west and east. Children in western countries are taught to make decision by themselves, to be
unique. In contrast, Chinese culture stresses the collective view; obey the parents and teachers
instructions. Thus there are many little emperor, little empress, which means the parents usually
overprotect the children and cater to almost every need of them.
Long-term Orientation vs. Short-term Orientation (LTO)
A lower degree of this index (short-term) indicates that traditions are honored and kept, meanwhile
steadfastness is valued. However societies with a high degree in this index (long-term) views
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adaptation and circumstantial, pragmatic problem-solving as a necessity. LTO scores are typically
high in China. They are low in the Muslim world and Africa(Hofstede,1997).
This LTO feature is expressed accordingly in President Xi Jinpings Speech(2014):
Confucianism thoughts cores are changing and updating in accordance with the social &economic
development. Thus it possessed the flourishing power at long term. What's more, the Confucianism
emphasizes the practicality of cultivating peoplethe so-called keep internal integrity, cultivate
the moral characters, manage the family, govern the state and achieve world peace. This thought
puts the governing management of individual, society and state into a hierarchy organically, the
different elements inside promoted interactively. Confucianism functioned as cultivating people to
achieve the harmony from every level of life.
Additionally, as translated as the Central Clue, the Golden Mean, Zhong Yong is key idea of
Chinese life: It is this spirit of reasonableness which has given birth to the Doctrine of Golden
Mean, the central doctrine of Confucianism. For a Chinese it is not enough that proposition be
logically correct, it is much more important that it be in accordance with human nature(Lin
Yutang, 1938). Chinese scholars should not to be extreme toward anything. And the Doctrine of
Mean is the solution to both academic issue and daily troubles. Thus it is corresponded with
description of the adaptation and circumstantial, pragmatic problem-solving as a necessity of high
LTO index of China in Hofstede culture dimension framework.
Furthermore, with the economic and social development, contemporary Chinese culture value
still keeps the culture traits, such as pursuit of life. Chinese people pay much attention on the
material life. Many youth are more likely to buy cars, house and famous brand clothes to. People of
China desire success and are eager to earn more money. Here we have so many Dama, Tuhao,
who are popular both domestically and overseas, make investment without hesitations.
Uncertainty Avoidance Index (UAI)
The Uncertainty Avoidance Index is defined as a society's tolerance for ambiguity, in which
people embrace or avert an event of something unexpected, unknown, or away from the status quo.
Societies that score a high degree in this index opt for stiff codes of behavior, guidelines, laws,
and generally rely on absolute Truth, or the belief that one lone Truth dictates everything. However,
a lower degree in this index shows more acceptances of differing thoughts/ideas. Society tends to
impose fewer regulations, ambiguity is more accustomed to, and the environment is more
free-flowing. UAI is the high Arab countries while low in China (Hofstede, 2000). This indicates
that Chinese culture has a feature of being open-minded to embrace the difference.
President Xi Jinping pointed that: Chinese civilization is the only civilization survived among the
Four Great Ancient Civilizations. It has been prospering, developing with since 5000 years before
and refreshing everlastingly (2014). In the Spring & Autumn period there are various schools of
thoughts contending situation. Confucius, Laotze and Mencius etc...studied the philosophy of the
society and nature, explored the relationship between human beings, people and society, people and
nature. Therefore they raised their own philosophy thoughts and theory systems. Xi also illustrated
that the core points of Chinese culture is open to the difference, absorbing advantages of other and
keep adjusting. Due to this core property it has been developed thought several historical
stagesfrom contention of a hundred schools of thought (Spring & Autumn Period)to the
collaborative prosperity of Confucianism, Buddhism, and Taoism (Sui &Tang Dynasty) to Neo
Confucianism (Song & Ming Dynasty). (XI Jinping, 2014)
With the development of Confucianism, the essential property has been maintained steadily:
Confucianism is conflicting, referring and fusing with thoughts of other schools and beliefs,
keeping absorbing and adjusting itself.
Similar with the features of high LTO as adaptation and circumstantial, pragmatic
problem-solving as a necessity, Chinese UAI index deliver the similar traits as being open-minded
to embrace the difference and self-adjusting.

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Discussion of the Chinese Values & Beliefs
IDV: China has strongly collectivist values. People prefer to stay in the group and holds
collectivism ideas than being individualism. LTO: Countries in Eastern Asia, typical China,
possesses a high degree in this index (long-term) views adaptation and circumstantial, pragmatic
problem-solving as necessities. UAI: There is lower score of Chinese culture countries. This trend
indicates that Chinese culture has a feature of being open-minded to embrace the difference, keep
adjusting itself.
LTO means to live harmonious with difference and keeping diversified. This is the core idea of
traditional Chinese culture, guided by open-minded attitude revealed in UAI. And this trend also
leads to the ideal situation mentioned in IDVlive with the family or/and the group the person
belonged to harmoniously, not to be individualism and personally independent because the tree
outstanding, the gaze will be off-blowing. Therefore the three-dimension framework emphasizes
on component in common, which is harmony.

From above table the common core idea of three indexes as UAI,LTO,IDV is harmony. But
harmony does not mean uniformity and keep silence, under the concept of the Belt and Road,
China should step out to make its own voice on the international stage.

Conclusions: Strategies of Cross-culture Communication in The Belt and Road Concept

Firstly, probe the essentiality of Chinese Culture, actively approach the discourse power system of
the world.
As analyzed before the typical Chinese culture element of the three culture dimension is
Harmonybe open-minded, develop with different ideas harmoniously, live & work with
family/group members. It stands for the attitude of both life and work, the ground of spiritual of
Chinese people. In the absence of this spiritual base the cross-culture communications is hardly to
accomplish. With the execution of the Belt and Road, the conflict & coordination between
domestication VS foreignization show the culture identity dividing line under different culture
system and crash between advantaged &disadvantaged cultures, even the confrontation of the

83
Eastern & Western culture & stake-holders involved in further extent. China is reconstructing its
international image and this the Belt and Road demonstrates its closer step to the international
discourse power system, gain the discourse power on the world stage. While conducting the
cross-culture communications, the culture transmitter should shift flexibly under the game of
domestication VS foreignization.
Secondly, based on the overall core elements of Chinese Culture, grasp the principal of
Harmony-seeking but not uniformity.
Harmony is the profound concept, implying the unification of variety of distinctions. During the
culture communications, conflicts and discrepancy are inevitable. It is supremacy to impose ones
own value and perceptions to the other people. In the procedure of cross-culture diffusion, different
religions &beliefs , multi cultures co-exist together, China should undertake the introspection and
achieve the uniformity in maximum degree by means of discussion, negotiation under stopping less
contradictions & conflicts. The golden Mean is not no principles but fair, integrity process. The
formation of culture is the long lasting process, meanwhile the spreading of culture is also the
gradual progressive way in long term. With the features of keeping refreshing and always
upgrading, practical to different surrounding, thoughts of Chiense culture should collide,
communicate and talk with others under different value systems, co-exist harmoniously to interact
effectively, and revive the brilliance of ancient Silk Road.

Reference
[1] Zhu Anbo, Domestication VS Foreignization: Flowing Deformation of Chinese Literature
Translation over Hundred Years[M], Beijing: Science Press 2009 In Chinese.
[2] Xi Jinping, Proposal of building Economic Belt of Silk Road, Xinhua Net,
http://news.xinhuanet.com/mrdx/2013-09/08/c_132701675.htm In Chinese.
[3] Wang Jiaquan: Translation of The Belt and road: literal VS free style:
http://dy.qq.com/article.htm? id=20150 626A00GJ300 In Chinese.
[4] Fuying, Speech on Argument of China Development and Regulations,
http://www.360doc.com/content/150521/ 8/6518186_472257512.shtml In Chinese.
[5] Hofstede, Geert. Social Responsibility of Organizations: Software of the Mind: Intercultural
Communication and its Importance for Survival, McGrea Hill, New York, 1991.
[6] Li Mengyu, M. H, Communicating Interculturally[M], Beijing: Higher Education Press.
2011.9.
[7] Hofstede, Geert, The Cultural Relativity of the Quality of Life Concept, In Cultural
Communication and Conflict: Readings in Intercultural Relations, 2nd ed, G.R. Weaver, ed.,
Boston: Pearson, 2000.
[8] Xi Jinping, Speech on commemorating 2565 anniversary of Confucius Birth Seminar,
http://www.gov.cn/ xinwen/ 2014- 09 /24/content_2755836.htm In Chinese.
[9] Lin Yutang. The wisdom of Confucius. [M]. New York: Random House. 1938.

84
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Study on the Development Evaluation of Circular Economy in Tianjin City

Based on AHP Method

Jun-ling ZHANG*
School of Economics and Management, Tianjin Vocational Institute, Tianjin, P.R.China
*Email: zhangjunling79@126.com

Keywords: Analytic hierarchy process, Circular economy, Statistical evaluation, Index system.

Abstract. The establishing of a scientific and operable index system is very basic and important to
make evaluation. In order to have a reasonable evaluation on the circular economy development in
Tianjin area, this paper has carried out some research work. Firstly, based on traditional AHP method,
it built a complete index system which consists of 4 parts, that is resource production, resource
consumption, comprehensive utilization of resources, waste, including 14 indexes. And this index
system was different from the past. Secondly, according to this index system, through establishing
comparison matrix and checking the consistency, it made an overall evaluation on the development of
circular economy on the basis of collecting and analyzing a large number of relevant data in Tianjin
area. Finally, it analyzed the evaluation result and put forward corresponding suggestions. These
suggestions mainly included paying further attention to resource recycling and reuse, strengthening
the environmental protection measures, and so on.

Introduction
In the past long time, China's economic development is the excessive consumption of resources for
the cost. At present, in the background of national implementation of the strategy of sustainable
development, the development of circular economy in each area is imperative. But the precondition to
ensure the long-term effective implementation of circular economy is to have a set of objective,
scientific and reasonable evaluation index system to make the evaluation of circular economy
development in a region. Through the evaluation, the existing problems in the implementation of
circular economy can be found and the corresponding countermeasures can be put forward. Research
on circular economy evaluation index has been reported in the literature. Back in 2006, Qing-ru Li [1]
designed an index system which includes 28 indexes and involves economic, social and
environmental. Ning Ma et al [2], according to the principle of 3R, used the material flow analysis
index made by Eurostat for reference and built the index system of economy, quantity, efficiency and
cycle. Li He [3] constructed the index framework which reflects four aspects of economic
development, the characteristics of circular economy, the ecological environment protection and
organization and security respectively and concludes a total of 39 indexes. Wei-ying Ping [4]
constructed the provincial circular economy evaluation index system based on the support vector
machine method. By analyzing the imperfects of the previous circular economy evaluation systems,
Yi-xin Ren [5] constructed a new evaluation system based on the input-output theory. Bo Cheng [6]
improved the traditional AHP method from the stakeholders perspective and studied the circular
economy evaluation based on AHP-BP.
Scholars have different views on the construction of the evaluation index system of circular
economy, their index systems focus differently. The author believes that when we construct the
evaluation index system of circular economy of an area, we should not only theoretically consider its
scientific nature, rationality and representative nature, but also consider the maneuverability of the
evaluation and the accessibility of the index data from the practical application. In the existing
literature, most scholars theoretically analyzed and constructed different index systems and made
specific interpretation and explanation to its connotation. However, they were rarely applied to
85
evaluate the practical problems. On the basis of traditional AHP method, this paper will combine the
actual development of circular economy in Tianjin area to build the evaluation index system and make
the final evaluation on the development of circular economy in Tianjin area.

The Construction of Circular Economy Evaluation Index System Based on AHP

AHP Theory
AHP(Analytic Hierarchy Process) is a simple, flexible and practical method of multi-criteria
decision-making, using a quantitative analysis method to solve qualitative issues, it is first proposed
by professor T.L.Satty of the United States. Its basic idea is first to build a hierarchical structure model
which is made up of the target layer, criterion layer and index layer according to the problems existing
in reality, then compare two elements between the same layer and through certain mathematical
methods to show each layer elements on the relative degree of the importance of a layer of
corresponding elements in weight, the final total ordering of the importance of all elements in index
layer compared with the target layer will be made and the total weighted values will be calculated.
Finally, it will make the corresponding analysis and calculation according to the determined weights
and propose the decision-making for the reality.
The Construction of Circular Economy Evaluation Index System Based on AHP
In 2007, National Development and Reform Commission, State Environmental Protection
Administration and National Bureau of Statistics of China jointly issued Notice on issuing the
evaluation index system of circular economy ([2007] No.1815). In the notice, according to the basic
characteristics of circular economy and by making full use of the existing data, the corresponding
circular economy evaluation index systems are constructed from the macro level and the industrial
park level, respectively. It also points out that the macro level evaluation index system of circular
economy is mainly used for the condition of whole society and around the development of circular
economy overall quantitative evaluation, the system includes 22 indexes which mainly covers
resource production, resource consumption, comprehensive utilization of resources and waste four
categories.
On the basis of the above index system and following the principles such as the data should be
easily acquired and the index system should have systematic and hierarchical characteristics, then
combining the relevant data in Tianjin Statistical Yearbook, this paper established the following
evaluation index system, as shown in Figure 1.
In Figure 1, the code C11, C12 represents different index, they are as shown below.
C11- Productivity of coal; C12- Productivity of crude oil; C13- Comprehensive productivity of
energy.
C21- Energy consumption per unit of GDP; C22- Energy consumption per unit of industrial added
value; C23- Power consumption per unit of GDP; C24- Power consumption per unit of industrial added
value.
C31- Rate of comprehensive utilization of industrial waste residue; C32- Innocuous disposal rate of
living garbage; C33- Percentage of disposed sewage treatment.
C41- Volume of industrial solid waste disposed; C42- Volume of industrial waste water discharged;
C43- Sulphur dioxide in waste gas; C44- COD of waste water discharged.

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 Evaluation of Circular Economy
Development Level of Tianjin (Z)

Resource Resource Comprehensive Utilization Waste

Production (C1) Consumption(C2) of Resources (C3) (C4)

C11 C12 C13 C21 C22 C23 C24 C31 C32 C33 C41 C42 C43 C44

Figure 1. The circular economy evaluation index system of Tianjin based on AHP.
The circular economy evaluation index system above contains three layers; they are from the top
down as follows: the target layer, criterion layer and index layer. Of those, the target layer is the
comprehensive evaluation on the overall development of circular economy in Tianjin area. The
criteria layer covers resource production, resource consumption, comprehensive utilization of
resources and waste emissions in four aspects. The index layer involves 14 indexes of coal output, oil
production rate etc.

Evaluations on the Development of Circular Economy in Tianjin Area

Determination of the Weight Coefficient of Circular Economy Evaluation Index System Based
on AHP

Construct the Judgment Matrix and Determine the Weight Coefficient. The construction of
judgment matrix is that in the established circular economy evaluation index system, the target
elements or the criterion elements in the upper layer are taken as reference factors, the factors or
indexes in the next layers are compared with each other, the judgment matrix of the target layer and
the criterion layer are constructed accordingly, and then the weight coefficient of each factor is
calculated according to the specified method.
In the process of constructing judgment matrix in this paper, we first had a full investigation and
repeated demonstration among a number of experts and scholars in the field of circular economy in
Tianjin about the relative importance between elements or indexes of the index system, then used the
usual method in Fuzzy Mathematics Theory to determine them one by one. Take waste emission
index in the criterion layer, for example, its judgment matrix is shown in Table 1.
Table 1. The judgment matrix of waste emission index(C4).
C4 C41 C42 C43 C44 Ci Wi
C41 1 1/3 1/4 1/2 0.4518 0.093
C42 3 1 1/3 2 1.1892 0.245
C43 4 3 1 3 2.4495 0.505
C44 2 1/2 1/3 1 0.7598 0.157

The meanings of numbers in Table 1 are as follows. 1 means the former and the latter are equally
important when two elements compare with each other, 3 means the former is slightly more
important than the latter, 5 means the former is obviously important than the latter, 7 means the
former is particularly important than the latter, 9 means the first is extremely important than the
latter. 2, 4, 6 and 8 are the comparison values between 1 and 3, 3 and 5, 5 and 7
and 7 and 9. Wi represents the normalized weight coefficient of each index.

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 n n
Wi = C i / C
i =1
i , C i = n c ij , n = 3or 4
j =1
(1)

The final weight coefficient matrix of waste emission index is C4={0.093,0.245,0.505,0.157}.

In the same way, the judgment matrixes of other elements in the target layer and the criterion layer
can be determined and their weight coefficients can be calculated. They are as follows.
Z={0.263,0.564,0.118,0.055}, C1={0.188,0.081,0.731}, C2={0.181,0.629,0.062,0.128},
C3={0.072,0.649,0.279}. The final weight coefficient matrix of the index system is
{0.049,0.021,0.192,0.102,0.355,0.035,0.072,0.008,0.077,0.033,0.005,0.013,0.028,0.009}.
Check the Consistency of the Judgment Matrix and Determine Whether Its Importance is
Reasonable. It can be further verified that whether the order of importance of the elements in each
judgment matrix is reasonable by calculating the consistency ratio of each judgment matrix (i.e.CR).
The standard for judgment is as follows. If CR is less than 0.1, the order of importance is reasonable.
Otherwise, it is unreasonable and the importance should be compared and corrected again. The
corresponding calculation formulas are as follows.

CR=CI/RI. (2)
CI = ( max n) /(n 1) . (3)
n

n c Wj =1
ij j
, n = 3or 4 . (4)
max =
i =1
nW j

RI is the average random consistency index; it is related to the value of n. The details are shown in
Table 2.
Table 2. The reference values of RI.
n 1 2 3 4 5 6 7 8 9
RI 0 0 0.58 0.90 1.12 1.24 1.32 1.41 1.45

By calculating, the consistency ratio of the judgment matrices is CRC1=0.056<0.1,

CRC2=0.050<0.1, CRC3=0.056<0.1, CRC4=0.032<0.1, and CRZ=0.043<0.1 respectively. Therefore,
the importance order of each index determined in the previous step can pass the consistency check,
these show that they are reasonable.

Comprehensive Evaluation and Analysis of the Development of Circular Economy in Tianjin

This paper selected 14 indexes such as the comprehensive energy output rate and energy consumption
per unit of GDP as the evaluation indexes of the development of circular economy in Tianjin, and
obtained a decade of statistical data from 2004 to 2013 from some related statistics such as Tianjin
Statistical Yearbook, Tianjin statistical bulletin and Tianjin environment bulletin and so on. The
statistical data of some indexes are shown in Table 3.
Among the 14 established evaluation indexes, they were divided into two classes firstly. A class is
such as comprehensive energy output rate index. The index value is greater, more conducive to the
development of regional circular economy, the indexes are positive indexes. Another class is such as
energy consumption per unit of industrial added value. The index value is lower, the resource
reduction principle is realized, and so the development of regional circular economy is more
favorable, the indexes are negative indexes. In addition, the dimension differences of 14 indexes must
be considered. The dimensionless processing should be done to avoid making the final evaluation
results are affected by different dimensionless variables.

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 Table 3. The statistical data of some indexes of Tianjin area from 2004 to 2013.
Evaluation Energy Rate of Comprehensive Volume of
Comprehensive
Index Consumption per Utilization of Industrial Industrial Solid
Productivity of Energy
Year Unit of GDP Waste Residue Waste Disposed
2004 0.84 1.29 97 21
2005 0.96 1.05 98 20
2006 0.99 1.00 98.4 20.38
2007 1.06 0.96 98.4 21.9
2008 1.25 0.89 98.2 26.84
2009 1.28 0.84 98.3 25.67
2010 1.35 0.74 98.6 27.02
2011 1.49 0.71 99.12 16.33
2012 1.57 0.67 99.22 14.31
2013 1.63 0.63 98.88 17.95

This paper first had pretreatment on circular economy evaluation index. After pretreatment, the
larger the index value, the more favorable to the development of circular economy is. Then by SPSS
software each index value was standardized and dimensionless. At last, the comprehensive evaluation
of the development of circular economy in Tianjin area from 2004 to 2013 was done through linear
weighted method. It is shown in Table 4.
Table 4. The circular economy evaluation of Tianjin area from 2004 to 2013.
Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Evaluation
0.238 0.376 0.483 0.616 0.970 1.292 1.412 1.820 2.910 4.019
Index

According to the relevant statistical data and the results in Table 4, the following conclusions can
be drawn.
Global Evaluation. As a large northern industrial city, the development of circular economy in
Tianjin area started earlier. It can be seen from figure 2 that the overall situation of the development of
circular economy in Tianjin area has been in a rising trend from 2004 to now, especially in 2007 and
2010 after Tianjin city were to become a pilot city of China's circular economy and low-carbon pilot
city, Tianjin has actively built a resource recycling system covering the whole society and its
development of circular economy was significantly improved.

Analysis on Second Class Indexes. Seen from the overall change of the second class indexes, the
resource output indexes, resource consumption indexes showed a steady change trend, the
comprehensive utilization of resources and waste emissions indexes did not have regular change in a
few years however. But in view of the different weights of each index in the comprehensive
evaluation, the final total evaluation results still showed a rising trend. In the future, on the basis of
maintaining the efficient use of natural resources and lowering the energy consumption, Tianjin
should pay more attention to resource recycling, from the source to reduce the consumption of
resources, strengthen the resources effect.

Analysis on Third Class Indexes. Seen from the overall change of the third class indexes, the
change trend of energy-saving progress indexes such as energy consumption per unit of GDP is
significantly better than the emission reduction index such as volume of industrial waste water
discharged. This shows that Tianjin should further strengthen the environmental protection measures
in the next period, actively strengthen all levels of social participation in environmental protection
and strengthen the awareness of environmental protection.

89
Conclusions
In the social context that the resources and environmental problems have become increasingly
prominent, the construction of city circular economy directly affects the degree of sustainable
development of a region. As a national circular economy pilot city, Tianjin has done a lot of work in
the construction of circular economy and achieved very positive results.
On the basis of the evaluation index system of circular economy proposed by National
Development and Reform Commission, thinking deeply about the availability and operability of the
statistical data of evaluation indexes and combining with the actual situation of the development of
circular economy in Tianjin area, this paper constructed the evaluation index system for circular
economy of Tianjin based on traditional AHP method, made the quantitative analysis on the
development of circular economy of Tianjin by using a large number of statistical data in the past ten
years, and obtained the objective evaluation results. On this basis, this paper put forward a couple of
suggestions for the construction and development of circular economy of Tianjin. It is believed that
this will play a very big role in promoting the circular economy of Tianjin in the future.

Acknowledgements
This research was financially supported by the foundations as follows: Humanities and Social
Sciences Research Project of Tianjin Higher Education (20132423); Philosophy and Social Sciences
Planning in Tianjin (TJGL15-048).

References
[1] Qing-ru Li, Shandong Social Sciences. 8(2006)57-59. In Chinese
[2] Ning Ma, Mei-ting Ju, Chun-li Chu, Environmental Protection and Circular Economy.
3(2010)37-39. In Chinese
[3] Li He, Journal of Chongqing University of Science and Technology (Social Sciences Edition).
2(2014)72-74. In Chinese
[4] Wei-ying Ping, Chun-lan Zhong, Journal of Beijing Technology and Business University (Social
Sciences). 29(2014)84-93. In Chinese
[5] Yi-xin Ren, Fan-li Meng, Xue-wu Li, Academic Journal of Jingchu. 15 (2014) 51-55. In Chinese
[6] Bo Cheng, Guo-zhu Jia, Management Review. 27(2015)36-47. In Chinese

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on Cost Model of Environmental Cooperation Protection for

Transboundary Air Pollution
Chang-min LI, Hong-xia WANG*
School of Management, Shanghai University, Shanghai, Peoples Republic of China

Keywords: Transboundary air pollution, EPC, Environmental protection.

Abstract. In recent years, air pollution problems become more and more serious, which led to
China's economic development and residents' health poses a significant threat. In this paper, we
proposed an environmental cooperation protection cost (EPC) model of the interprovincial air
pollution. Then we use the data of sulfur dioxide from 2003 to 2013 to fit the environment
protection cost function of Beijing, Tianjin, Hebei. We then applied the EPC model to the seriously
polluted BeijingTianjinHebei area of China. Compared with the current commandand control
regulation approach, the EPC model for the BeijingTianjinHebei area decreased the total
environmental protection cost, which proved that the EPC model was superior because it both
mitigated the problem of air pollution transport across regional boundaries and utilized the available
resources of the study area more efficiently.

Introduction
Environmental pollution is a current severe environmental problem for industrial-development
cities in the world. As an important constituent part of environmental pollution, air pollution has
extremely adverse effects on lives and health of urban citizens, and the serious air pollution even
constitutes great threats for survival and development of human beings. According to reports, there
are more than 400 million urban citizens in China living in air which is not in accordance with the
basic healthy requirements. We must take comprehensive measures to control air pollution because
of regional characteristics and cross-border of air pollution, or it would be difficult to achieve a
desired effect. So it is extremely necessary to study air pollution prevention.
Numerous domestic and overseas scholars have researched the influences of air pollution on
human health and its harms to the health. In 2012, Yan Hu [1] studied influences of air pollution on
ecological environment and its countermeasures. Xie Peng et al. [2] took advantage of Meta
analytical method to acquire exposureresponse relationship related to influences of air pollutant
exposure on health outcomes of Chinese. Jiang Shaorong et al. [3] deeply researched effects of air
quality situation in Chinese environment and air pollution on health. Blangiardo et al. [4] proposed
a Bayesian Hierarchical Model to study the influences of air pollution on health. M kampa and E
Castanas [5] noted that air pollution are acute and chronic hazards of human organs and they had a
brief discussion of various air pollutants on human health and the mechanism.
Besides, domestic and overseas scholars also actively researched the relationship between
environmental pollution and economic development. Li Yongtao and Li Feng [6] conducted the
theoretical explanation for EKC hypothesis and proposed its general sufficient conditions. Halkos
[7-9] established European Acid-rain Static Game Model based on game theory and used the model
to properly distribute sulfur dioxide emission so that total cooperative benefits can be increased by
comparison of non-cooperative period. Dales [10] explained the emission right market in detail and
Krawczyk [11] utilized the coupling constraint game model to analyze emission distribution and
production situations of only three participants in order to prove the existence of Nash Equilibrium
for emission behaviors and get its solutions. Tisdell, Harrison [12], Becker [13] and Bielsa [14]
took advantage of game model to imitate conflicts non-cooperative and cooperative behaviors and
distributed equally benefits brought by cooperation based on the comparison of different behavior
benefits. Spullber et al. [15] and Weber et al. [16] believed accumulative effect is existed in
pollutant transfer and diffusion.
91
 Almost all the researches above carried out qualitative analyses related to influences of air
pollution on environment and human life, but it had no quantitative researches on air pollutions
effects on environment. In this paper, we established a cooperative environment protection cost
mode, then we fitted SO2 environmental protection cost function with the data from 2003 to 2013.at
last, we took the actual situation of Beijing-Tianjin-Hebei in 2009 for example and made a compare
between EPC model and provincial territorial management model which is being implemented.

Construction of Environmental Protection Cost Model on Air Pollution (EPC)

In the entire district of air pollution, emitted pollutants in the regions will cause air pollution when
transferring to another region in order to affect economic development benefits of the region. In
order to meet requirements of economic development, the nation shall input certain expenses
annually for environmental protection, which is called environmental governance and investment
costs. The paper adopted EPC to represent effects of pollutants emitted in air on economic benefits
of the whole district. The variables in the established air pollution EPC model are shown in Table 1.
Table 1. Notation.

Variable Explanation

I A set constituted by all the regions in the whole polluted district.

pi Amount of a kind of pollutants disposed by own facilities annually in region i.

pi0 Amount of a kind of pollutants produced annually in region i.

pi max Maximum amount of a kind of pollutants in region i stipulated by nation.

PCi () Environmental protection cost used for environmental governance in region i.

i Lower-limit coefficient of annual capacity to dispose a kind of pollutants by Equipment in region i.

i Upper-limit coefficient of annual capacity to dispose a kind of pollutants by Equipment in region i.

The environmental protection cost invested for environmental governance in whole air pollution
district is represented as the total expenses of all administrative regions to deal with environmental
pollution, namely:

PCt = PCi ( pi ) (1)

ii

For the whole district, the total amount of eliminated sulfur dioxide by all administrative regions
can be calculated as sulfur dioxide created in polluted area deducting national stipulated emission
amount of sulfur dioxide, namely:

p = p p
i 0i i max (2)
iI iI iI

The paper only took industrial pollutants into consideration and it is limited by handling capacity
of equipment, thus:

i p0i pi i p0i , i I (3)

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 The pollutant amount in the district which will do harm to environment is represented as
pollutants created in all regions deducting partial pollutants treated by facilities, namely the
pollutants emitted to the air pi0-pi. By integration of this method, relationship between air pollutant
emission and EPC is shown as follows:

PCi ( pi ) = di0 ( pi0 pi )2 + di1 ( pi0 pi ) + di 2 , i I (4)

di0, di1, di2 are constants and pi is regarded as a decision variable, while the regulation of
transferred pollutants among regions is proposed as a means. With minimum EPC expenses in
whole polluted district as the goal, the following atmospheric EPC model is established:

(5)

Empirical Analysis
On March 29, 2014, International High-level Counsel Conference on Atmospheric Flow Source
Pollution Control: NOx Emission Management and Control was held in Beijing. The director, Wu
Xuefang stated: The current situation of air pollution in China is extremely severe and sulfur
dioxide, nitrogen dioxide and fine particulate matter pollution has reached the top in the world. In
2013, Beijing suffered from four hazy phenomena, and only five days in January were not in hazy
weather. The involved areas mainly include Mid-east, Northeast and Southwest regions of China
with the most serious cities of Beijing, Tianjin and Hebei. In addition, the analysis showed most of
sulfur dioxide in Beijing was transferred from Hebei due to coal combustion. It was seen from
statistics that the standard coal combusted annually is 23 million tons in Beijing, 70 million tons in
Tianjin and 270 million tons in Hebei. Since sulfur dioxide, nitric oxide and inhalable particle is the
main pollutants for haze, we chose sulfur dioxide, one of air pollutants in Beijing-Hebei-Tianjin
area, as the research object to implement empirical analysis for air pollution EPC model.

Fitting EPC of Beijing-Hebei-Tianjin

The paper selected the air pollutant, sulfur dioxide, as a case and regarded handling capacity of
industrial sulfur dioxide annually in regions as independent variable and the investment of industrial
pollution governance for sulfur dioxide as dependent variable to fit EPC of sulfur dioxide. Since
environmental statistical yearbook directly published actual annual emission amount of sulfur
dioxide without its governance expenses, the paper regarded total emission amounts of industrial
sulfur dioxide, industrial fumes and industrial dust as the total amount of emission for industrial
waste gases and commonly shared the total expenses of investment for industrial pollution
governance according to proportion of emission amount related to regions sulfur dioxide in total
amount of industrially emitted waste gases. C is represented as the proportion of emission amount
for sulfur dioxide of administrative region i in total amount of industrially emitted waste gases :

C = Total amount of industrially emitted sulfur dioxide / (total amount of industrial sulfur
dioxide + total amount of industrial fumes + total amount of industrial dust)
93
 Investment expense for industrial sulfur dioxide governance = C total amount of industrial
pollution governance

We collected the data of 2003-2013 from environmental statistical yearbook and calculated
investment expenses for governance of industrial sulfur dioxide in all regions. SPSS was used to fit
binomial data and fitting results are shown in Table 2.
Table 2. Fitting Goodness of EPC in Beijing-Tianjin-Hebei Region.

R Party F Freedom Degree Significance

Beijing 0.976 59.977 2 0.004

Tianjin 0.952 29.947 2 0.010

Hebei 0.96 35.977 2 0.008

The environmental protection costs function of Beijing Tianjin and Hebei in 2009 respectively are:

PC1 = 8044.6(17.3 p1 )2 108309.5(17.3 p1 ) + 367749 (6)

PC2 = 2912.3(43 p2 )2 117844.5(43 p2 ) + 1221715 (7)
PC 3 = 159.9(228.1 p3 )2 35949.6(228.1 p3 ) + 2042807.5 (8)

From the results, it was showed the relationships between actual emission amount of sulfur
dioxide and EPC in Beijing, Tianjin and Hebei are all represented as U-shaped curve. According to
removal quantity of industrial sulfur published in 2009 Chinese environmental statistical yearbook,
we could further calculate EPC for sulfur dioxide of all regions in 2009.
Table 3. Relevant Indexes of SO2 for Beijing, Tianjin and Hebei in 2009 (Unit: ten thousand tons).

Province Beijing Tianjin Hebei Total

SO2 amount produced in industry 23.2 49.4 249.1 321.7

Industrial SO2 removal quantity 11.3 25.7 123.8 160.8

Actual SO2 emission index 11.9 23.7 125.3 160.9

Nationally stipulated emission index 15.98 24.5 131.6 172.08

Nationally distributed removal index 7.2 24.8 117.5 149.5

The nationally distributed sulfur dioxide removal quantity data in Table 3 was substituted into
formula 6-8 to get EPC of all administrative districts and the details are as shown in Table 4.
Table 4. Sulfur Dioxide Removal Index and EPC of All Administrative Districts in Beijing, Tianjin and Hebei in 2009.

Province Nationally distributed removal index (10000 tons) Environmental protection costs (10000 yuan)

Beijing 7.2 94452.7

Tianjin 24.8 41615.4

Hebei 117.5 22736.1

Total 149.5 158804.2

94
 From table 4, it was seen that the sulfur dioxide removal index in Beijing, Tianjin and Hebei
distributed by State Environmental Protection Department is totally 1495 thousand tons, and it is
required to pay 1588.042 million yuan as EPC.
Optimal Solution Seeking for EPC Model of Beijing, Tianjin and Hebei
The annual handling capacity of waste gas treatment equipment in all regions has a certain range.
The paper selected 0.9 times of emission amount of industrial pollutants as maximum annual
handling capacity and 0.4 times as minimum one. As a result, the optimal solution and the expenses
of all the administrative areas for air pollution EPC are as shown in Table 5:
Table 5. Comparison related to Optimization Results of Cooperative Protection Costs among Beijing,
Tianjin and Hebei in 2009 (unit: ten thousand tons; ten thousand yuan).

Province Removal amount of The optimal removal Environmental protection EPC model
dependency model amount costs of dependency model
Beijing 7.2 10.58 94452.7 3190.42

Tianjin 24.8 22.79 41615.4 29589.41

Hebei 117.5 116.14 22736.1 22243.44

Total 149.5 149.51 158804.2 55023.27

In the provincial-level dependency management model, when removing nationally stipulated

amount of sulfur dioxide, Beijing, Tianjin and Hebei shall spend total costs of 1588.042 million
yuan for environmental protection; while in cooperative protection model, the total costs of Beijing,
Tianjin and Hebei for environmental protection are 550.2327 million yuan with cooperative profits
of 1037.81 million yuan, thus the total EPC of Beijing, Tianjin and Hebei is reduced by 65%.

Conclusion
Under the premise of cooperation established by several administrative areas in the polluted district
for mutual governance of air pollution, the paper built the Environmental Protection Cost Model.
Taking emission amount of industrial sulfur dioxide among atmospheric pollutants of Beijing,
Tianjin and Hebei from 2003 to 2013 as the case, the paper fit atmospheric pollutant environmental
damage costs of the three provinces. It was found from research results that there is a U-shaped
relationship between industrial sulfur dioxide emission and investment for industrial pollution
governance, that is, EPC is increased firstly, then decreased and finally increased again with
increase of pollutant emission. In addition, the paper calculated the models optimal solution and
EPC after optimization. By comparison of Chinese provincial-level dependency management model
under construction, it was found that environmental protection cooperation model not only reduces
total EPC of the whole polluted district and expenses of environmental governance solely by each
administrative area, but provides cooperation among administrative areas. The paper carried out the
quantitative analysis on relationship between atmospheric pollutants and environmental damages,
which is beneficial for Chinese government to specifically control environmental pollution problem
according to special national situations and economic development phase, that is, it decreases both
the total expenses of environmental pollution governance and the degree of air pollution to some
extent.

Acknowledgement
This study was supported by an NSFC grant (NSFC 71401097), the Chinese Ministry of Education,
Humanities and Social Sciences (13YJC630072 and 13YJC630196), the Shanghai University
Innovation Project (sdcx2012013), the Shanghai Young University Teachers Training Subsidy

95
Scheme (ZZSD12029), the Ministry of Education, Shanghai Philosophy and Social Science
(2013EGL010), and Shanghai Education Innovation (14YS002 and B51CX14R003).

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96
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

E-business Utilization in Supply Chain Management of UK Textile

Manufacturing Industry

Fang SHAO1,2,a,*, Iain STALKER1

1
School of Materials, The University of Manchester, Manchester, England, UK
2
School of Economic and Management, Zhongyuan Industry University
a
Email address: fang.shao@postgrad.manchester.ac.uk
*Corresponding author

Keywords: E-business, Supply chain management, Textile manufacturing industry.

Abstract. UK textile manufacturing industry is facing fierce competition due to ongoing

globalization. In order for UK textile manufacturers to survive and earn profits in the future, it is
necessary for them to create more competitive strategies based on new initiatives. E-business may be
one of those initiatives due to its advantages to facilitate the speed of information flow and manage
business transactions across long distance between partners in supply chain. This paper aims to
understand and address the issues and future directions for UK textile manufacturers to improve
competitiveness by utilizing e-business in supply chain.

Introduction
Textile manufacturers in UK find their weak trading positions to foreign competitions, because these
competitors can cost much lower on yarn production outside UK (Allwood et al., 2006). They have
suffered torment in today's dynamic environment. According to UK Statistical Bulletin (2015), textile
manufacturing has been in a long-term declining, the production form the first quarter of 1973 to the
third quarter of 2015 decreased by 69.5%. During the same period, total manufacturing output grew
by 10.5%, which means, the contribution of the textile industry added to UK manufacturing industry
value declined.
In order for UK textile manufacturers to survive and earn profits in the future, it is necessary for
them to create more competitive strategies based on new initiatives. E-business may be one of those
initiatives due to its advantages to facilitate the speed of information flow and manage business
transactions across long distance between partners in supply chain (Sharma, 2013).

Textile Supply Chain Management

Supply chain encompasses all processes, including the movement of materials, flow of information
and services from suppliers of raw materials to end customers, by utilizing products or services
equipment and warehouses (Gibson and Edwards, 2004). Textile industrys characteristics are labor
intensive and time consuming processes which perhaps are the obstacles to modernize textile supply
chain management (SCM) (Fernie and Azuma, 2004). Textile supply chains current interface is to
approach global interface. It is obviously that more and more firms are purchasing goods from
overseas, such as the South East Asia, Far East and even moving manufacturing to neighboring
countries with lower labor costs, which may adversely affect delivery cycle (Allwood et al., 2006).
Such condition could affect the feedback ability of enterprises, the lack of cooperation between
suppliers and customers may lead to further argument (Adewole, 2005). Hence, it is significant to
manage supply chain efficiently to maintain effective collaboration and responsiveness among
different parties. The objective of supply chain is to improve efficiency through electronic business
procedure, supply and demand adjustment, which can be achieved by using e-business tools.

97
 Textile industrys characteristics are studied in the range of lean and agile SCM, and supply chain
cooperation and its profits are explored. In the case of products quality, inventory management,
forecasting techniques lead time, logistics, Teng and Jaramillo (2006) explain the SCM in small and
medium sized companies (SMEs); therefore, researchers developed an assessment model to maintain
textile manufacturers advantages in global competitive environment (Teng and Jaramillo, 2005). In
addition, researchers are investigating textile industry in order to improve entire competitiveness
through SCM; meanwhile, how to create competitiveness in textile industry through SCM practices is
studied recently (Haque and Azad, 2008).

E-business Utilization in textile Supply Chain

By utilizing e-business technologies and providing a fully integrated e-business process, the company
can integrate activities within value chain. It is essential to achieve an effective SCM by applying
e-business and integrating physical processes. As the foundation of a computer network, e-business
supports company to make business decision and coordinate inter-organizational relationship by
searching and retrieving information. The internet provides company information about the product
demand, inventory, manufacturing process, delivery and customer sites to manage supply chain
activities.
Nowadays, enterprises are taking advantages of massive available data, cloud services, business
analytic, enterprises mobility and other methods to prompt business progress. Vermesan and Friess
(2015) conclude that those technologies comprise big data, cloud services, business analytics
software, sensing technology/sensor networks, embedded technologies, radio frequency identification
(RFID), global positioning system (GPS), machine-to-machine (M2M), ID recognition technology,
mobility security, standardization and wireless networks.
Companies can access the e-business technologies provided by third parties through internet
instead of establishing their own information technology (IT) infrastructures. These resources are
commonly defined as cloud computing by European Commission (2014), which is an important
strategic digital technology for higher productivity and better service. Enterprises must have internet
to apply cloud computing because these services are only delivered on-line. According to Eurostat
(2014) report, only 24% enterprises in UK used cloud computing services in 2014, which is little
more than 19% of all enterprises in the 28 countries of European Union.
Osmonbekov et al., (2002) insist that e-business tools can be divided into three different categories:
manufacturer provided, reseller provided and third-party provided. Manufacturers can purchase
web-based software, and make it available to their dealers, such as early enterprise resource planning
(ERP) and its precursor material requirement planning (MRP) and manufacturing resource planning
(MRP II), electronic data interchange (EDI) and the recent Oracle's Siebel brand software of partner
relationship management (PRM). For example, Renault uses PRM to develop overall
communications with its dealership in networks, improve the dealer's responsive capabilities for
requirements of their customers, strengthen technical support service and streamline business
procedures (Oracle, 2006). Resellers can obtain e-business tools from their manufacturers website.
From regular manufactures website, the distinguishing feature of the e-business tools is that
e-business software permits resellers to bargain with their manufacturers, order products and services,
upload applications for advertising funds, track orders and shipments, and manage sales leads, etc.
(Theodosiou and Katsikea, 2012).

Conclusions, Managerial Implications and Future Research

Currently, there are few researches about the adoption of e-business approaches within the supply
chain of UK textile manufacturing industry, both generally and specifically in the textiles and apparel
sector. In particular, there is no rigorous analysis of the motivations, perceptions, constraints and
barriers that underpin the use or rarely use of e-business approaches and ICT generally. Together these

98
studies provide two main conclusions. Firstly, the adoption of e-business follows incremental
strategies generally go from limited use of e-business technologies to a wider use in the whole supply
chain, starts from external process to the integration of internal process. Secondly, the extensive use
of e-business related to supply chain should be associated with closer cooperative relationships, but
limited utilization is usually only involved in the effectiveness of information sharing.
Faced with decision making about the utilization of e-business tools in supply chain management,
the UK textile manufacturers should consider the overall e-business strategy which is suited to their
particular processes, together with the implementation. This is extremely important for SMEs who
cannot afford the cost at a single moment. There are considerable arguments about the practicality and
the intrinsic value of the adoption of e-business in UK textile manufacturing industry. Whilst Zhu et
al. (2003) indicate that firms are migrating toward the internet-based digital platform that holds the
promise of substantial productivity gains (Zhu et al., 2003, p251), Basu and Muylle (2011) recently
conclude that many entrepreneurial ventures and established firms are still having difficulty in
harnessing the power of digital technologies in e-business (Basu and Muylle, 2011, p439).
The integration of e-business strategy - upstream and downstream - is not the best strategy for each
company. Managers should consider the consistency between the adoption and choices of e-business
technologies in terms of integration with suppliers, customers and other partners in supply chain.
Manufacturers should have an intimate knowledge of their strategic options in keeping with
internal competences and available resources, and the location in supply chain, such as a lead
company or a participant supplier. Long-term relationships built on trust enabling the company to
share information and resources to facilitate operational efficiency and meanwhile, competitive
advantages can be generated (Kannan et al., 2008).
Manufacturers should update technological abilities constantly, not only innovative products, but
also the acquisition of knowledge. E-business technologies are highly recommended to aid and
accelerate information sharing internally and externally to prompt closer relationships with other
partners in supply chain (Croom, 2005).
Manufacturers should enhance marketing capabilities, seek trend forecast and global market
information and utilize marketing function effectively to improve the reliability of interface with
customers (Adewole, 2005).
In order to achieve competitiveness, manufacturers should consider a certain degree of vertical
integration and access to vital knowledge or skills such as design, research and development to
implement e-business initiatives in supply chain (Chopra and Meindl, 2010).
This study will attempt to provide in-depth discussion of how the textile manufacturers can sustain
their competitiveness in the global industries through the example of UK textile manufacturers. The
research will present two or three of the first empirically-based case evidences, to the researchers best
knowledge, of e-business initiatives applied in the supply chain of textile industries. It will
demonstrate how the UK textile manufacturers can sustain their competitive advantages through
e-business strategic application, generate initiatives in such a dynamic world, which may set an
example for other manufacturers who attempt to utilize e-business into their strategic management in
order to survive and compete.

References
[1] Adewole, A., Developing a strategic framework for efficient and effective optimisation of
information in the supply chains of the UK clothing manufactures industry. Supply Chain
ManagementAn International Journal 10(5), (2005) 357-366.
[2] Basu, A. and Muylle, S., Assessing and enhancing e-business processes. Electronic Commerce
Research and Applications 10(4), (2011) 437-499.
[3] Chopra, S. and Meindl, P., Supply Chain Management - strategy, planning and operation. Pearson
Education, New Jersey, 2010.

99
[4] Eurostat, ICT usage in enterprises in 2014. Eurostat Press Office, (2014), Information on
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[5] Fernie, J. and Azuma, N., The changing nature of Japanese fashion: Can quick response improve
supply chain efficiency?, European Journal of Marketing 38(7), (2004) 790-808.
[6] Gibson, P. and Edwards, J., The strategic importance of e-commerce in modern supply chains.
Journal of electronic commerce in organizations 2(3), (2004) 59-76.
[7] Haque, A. and Azad, R., Is Bangladeshi RMG sector fit in the global apparel business? Analyses
the supply chain management. The South East Asian Journal of Management 4(1), (2008) 53-72.
[8] Hsu, C.-C., Kannan, V.R., Tan, K.-C. and Leong, G.K., Information sharing, buyer-supplier
relationships, and firm performance: a multi-region analysis. International Journal of Physical
Distribution and Logistics Management 38(4), (2008) 76-82.
[9] Julian M Allwood, Saren Elleback Laursen, Cecilia Malvido de Rodrguez and Nancy M P
Bocken, Well dressed? The present and future sustainability of clothing and textiles in the United
Kingdom. University of Cambridge, 2006.
[10] Oracle, Enabling partner value networks through partner relationship management. White Paper,
August (updated), (2006), Information on http://www.oracle.com
[11] Pvidiu Vermesan and Peter Friess, Building the HYperconnected Society, River Publisher, 2015.
[12] Sharma, Varinder M., Enhancement of trust in the export management company-supplier
relationship through e-business. International Journal of Commerce and Management 23(2013)
24-37.
[13] Simon R. Croom, The impact of e-business on supply chain management. International Journal
of Operations and Production Management 25(1), (2005) 5573.
[14] Teng, S. G., and Jaramillo, H., A model for evaluation and selection of suppliers in global textile
and apparel supply chains. International Journal of Physical Distribution and Logistics Management
35(7), (2005) 503-523.
[15] Teng, S. G., and Jaramillo, H., Integrating the US textile and apparel supply chain with small
companies in South America. Supply Chain Management: An International Journal 11(1), (2006)
44-55.
[16] Theodosiou, M., and Katsikea, E., Antecedents and performance of electronic business adoption
in the hotel industry. European Journal of Marketing 46(1/2), (2012) 258283.
[17] UK Statistical Bulletin, Office for National Statistics, (2015), Information on
http://www.ons.gov.uk/ons/index.html
[18] Zhu, K., Kraemer, K. and Xu, S., Electronic business adoption by European firms: a
cross-country assessment of the facilitators and inhibitors. European Journal of Information Systems
12(4), (2003) 251-268.

100
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Supply Chain Contract of Considering PDL and the

Price Factor under the Quality Guarantee of the E-commerce
Xun YAO, Hui LIU and Wei-e PAN
Southwest University for Nationalities College of Management, P.R.China, 610041

Keywords: The quality guarantee of the e-commerce, Linear demand function, PDL, The revenue
sharing contract.

Abstract. This paper, under the e-commerce environment, studies the coordination of supply chain
which involves the price factor and promised delivery lead-time (PDL). Under linear demand
function, we construct the wholesale price contract and the revenue sharing contract. The research
shows that under the e-commerce environment, the traditional wholesale price contract cant
achieve the supply chain coordination, but the coordination can be achieved by the revenue sharing
contract in the condition that the wholesale price of suppliers equals to the cost of production. At
this moment, retailer gains of the total revenue, and supplier gets the residue 1 .

Introduction
With the rapid development of information technology and Internet technology, online selling is
gradually revealed a trend that it will replace the dominant traditional channel sales. Today's retail
industry, young people are the most quantity of the main consumption army. They like to choose
online shopping this kind of fast, convenient and money saving consumption patterns. So, now you
can always found a heap of various package express in the library, gym or dormitory in front of the
open space, no matter what university it is. With the flourishing development of e-commerce, the
e-commerce platform and customer differentiation occurred in different forms. Such as domestic JD,
Vipshop, of course, more like Tmall mall, Dangdang and other similar sites, both of their product
quality have a god reputation. Goods delivery time and quality of the former kind site are
guaranteed; but the latter site delivery time is often delayed, and the quality of the goods is uneven.
Below what happened around me, it might give us a good inspiration about the theme. Not long
ago a friend talked me a very interesting shopping experience. When her children need buy a story
book for learning, she chose JD not Dangdang though its price is more expensive. Its unusual. And
her wordsJD can deliver the book in two days made a deep impression to me. This story
happened around us deeply reveals a new concept of consumption: on the quality guarantee of the
e-commerce, the impact of commodity demand in addition to the price factor, PDL is also a very
important factor. Though in the usual channels, most affecting the demand are price and quality, but
in JD guaranteed the quality of e-commerce platform, customer demand for quality is weakened,
they are more valued price and the PDL. This shift in thinking may be associated with the current
fast-paced life experiences. But the formation and popularization of the consumption concept, will
have a major impact on the existing vendor operation decision-making and operation mode of
electronic commerce. How to tap the potential demand motive and form vendors rational decision
on this basis, this will have a very important theoretical and practical significance for the future
healthy development of e-commerce in China.
The study of PDL, in recent years has been popular in the operations management of the
direction, many researchers have made beneficial exploration from different perspectives.
The first is a single enterprise delivery commitment, CJ Liao& CH Shyu (1991) studies in the
case of the certain order quantity, continuous inventory check strategy is used to establish the
inventory model of lead time is controllable, lead time is the only variable in the model [1]. The
study shows that we can use the additional cost and shorten the lead time to improve customer
service on the one hand, and to reduce the safety stock on the other hand. Daya (1994) modify the
model based on CJ Liao, the order quantity is seen as the decision variables [2]. Liang Yuh Ouyang
(2002) makes further modifications to the model, the reorder quantity is as well seen as decision
101
variables, and analyzes the optimal lead time problem [3]. These early studies about lead time are
mainly within the enterprise production environment as a starting point to focus on the performance
of the enterprise.
With the deepening of the research, some scholars prefer to study delivery from the aspect of
marketing decision making, this will involve a lot of production capacity and pricing problem.
Palaka (1998) studies in the price and delivery time is a linear function of demand, considering the
profit maximization under restriction of service level [4]. Ray& Jewkes (2004) based on Palaka et al.
(1998) consider a decision model in which price and demand are sensitive to demand, and consider
the maximum of the expected profits under certain service level [5]. Shao Jianjun (2007) studies the
alternative between different market and their own capacity constraints, how to influence the market
price of the product and delivery time decisions [6]. It is not hard to see from the documents, with
the deepening of research, the research of scholars has gradually changed from the internal
environment of enterprises to the market, but these documents consider market mainly traditional
markets, rarely involves the electric dealer market. In the traditional market environment, enterprise
more is as an independent individual, by predicting the demand changes to make the corresponding
production capacity, PDL decision, and then analyzed the effects of these decisions on firm
performance.
Some scholars research the market demand and lead time from the perspective of supply chain.
Ma Shihua (2006) studies the decision-making of supply chain based on time is sensitive to the
price problem in the simple newsboy model [7]. Studies have shown that under centralized
decision-making supply chain performance is superior to performance of suppliers and retailers
when making decentralized decision. Li Yibin (2010) establishes a stackelberg game where
manufacturers is given priority by using game tools ,in order model, and analyzes the relationship
between lead time and pricing effects on supply chain performance [8]. Li Yina (2010) establishes
joint supply chain inventory optimization model of the controllable lead time, by the supplier and
the retailer together determine the order quantity and delivery time, and by sharing cost strategy [9].
Research shows that reasonable lower lead time can reduce inventory cost, and the cost allocation
model is operable. From these documents we can see that the performance is the key of supply
chain coordination. In these studies, they dont conduct the thorough research to the segmentation
of e-commerce platform, especially the e-commerce platform we study in this paper. Namely on the
platform of product quality is guaranteed, what kind of change will happen about customer demand ,
and how will this change affect the supply chain management decision-making.
In view of this, this paper will use a linear function contains price, fixed PDL to approximatively
depict user needs in which having a good quality reputation e-commerce platform. And in this case,
we research the supply chain composed of a single supplier and a single retailer, and we research
supply chain members how to coordinate the pricing and operation decision in the case of a given
level of service and lead time. Through the analysis of profit between supplier and retailer, we study
the individual and overall performance under the decentralized supply chain and centralized
decision-making. Studies have shown that under the wholesale price contract, decentralized
decision making of the supply chain in terms of quantity and income is far less than the quantity of
centralized decision-making and earnings, which shows that the wholesale price contract cant
coordinate the supply chain. Therefore, we use the revenue sharing contract to improve this
situation, and give relevant contract parameter, studies have shown that revenue sharing contract
can achieve supply chain coordination. In addition, in the study we also found a very interesting
phenomenon, that is under the centralized decision-making supply chain's commitment to the
delivery time is greater than the PDL under decentralized decision making, this phenomenon is
contrary to our intuition, our reasons for this phenomenon also has carried on the simple analysis.

The Basic Model Description

In this paper, the basic model is as follows: in a product quality guaranteed e-commerce platform,
consider two participants of two stage supply chain: suppliers and retailers. The supplier sells goods
to retailers with the wholesale price for w , retailers order goods from suppliers according to the
102
market demand (The order quantity is q ),at the same time retailers ensure the PDL l to customers.
In addition, the supplier delivery time of products and retailers delivering the product to the user's
time must be less than the retailers pledging to the customer delivery, for this purpose retailers
promise delivery time to pay for the cost is c l . Finally, retailers will obtain corresponding profit
by selling goods at the price of p . In this paper, we assume that supplier and retailer are risk
neutral and rational economic man, the information is symmetric, and they will make decisions
based on the principle of profit maximization.
In addition, because the study background of this thesis is an e-commerce platform where the
quality of the product has a certain guarantee, so the demand function must take this particularity in
construction into account. So this study dont take the product quality as an important factor of
demand structure like WuJun (2013) did [10], but based on the actual investigation, and use the
linear demand function as stidham , Li Yibin (2010) does [8]. Specific practices are as follows: due
to the operation of e-commerce and traditional channels is very different, it makes the traditional
wayNo pay no goodsoccurs in terms of time and space separation, and results delay between
them. This nature makes the PDL and service is very important in the electronic trading, combined
with the fast pace of modern life. And it makes customer requirements for the time of delivery is
very high, they even for a shorter delivery time and would rather pay some additional charges.
According to some related websites questionnaire survey found: in the platform of quality
guaranteed, price, given promise delivery time are important factors to decide whether order online
payment happened, this is similar to the feeling of most customers shopping on JD. In view of this,
we simplify conditions in order to highlight the platform features, this paper makes the assumption
that the retailer's order ( q ) is equal to the market demand D , the demand is associated with price
and PDL. Market demand is not only influenced by the retailer's price, but also affected by
commodity promised delivery date, which PDL contains the product service from the retailers and
suppliers, the higher the quality of their services, the shorter the promised delivery date is, the
higher the corresponding product market demand. The linear relationship also conforms to the
common sense and logical, linear demand function formula (1) as follows:

D a p l (1)

In this paper, we use the symbol: r : retailers; p : the retail price of a commodity; l : retailers
promise lead time of delivery; a : the size of the market (Assuming the product market is relatively
stable, the value is a positive constant value); : retailer's market test coefficient of PDL 0 , it

measures the effect that the changes of the retailers PDL about the market demand, when is larger,
the smaller retailersPDL reduction can bring the bigger increase of market demand; s : suppliers;
w : the wholesale price of the suppliers; c : the production cost of the suppliers; , : d w

respectively, are seen as the supply chain's total income dispersion and Total revenue under
centralized decision; For the convenience of analysis, the assumption of the retailer's PDL cost is
exponential, and the retailer's promise delivery lead-time cost test coefficient is 0 ,when
is greater, which indicates that the corresponding cost is higher. The retailers paying the cost for
PDL is:

c l l 2 2 (2)

The Wholesale Price Contract Model

According to the basic model of the second section description, the realization of the basic model of
the wholesale price contract is:
Expected profit function for suppliers:
103
 s max w c a p l
w, (3)

Expected profit function for retailers:

R max p w a p l l 2 2
p, l (4)

Proposition 1: price, the PDL are as the core of e-commerce platform where product quality
guaranteed, the wholesale price contract can not coordinate the implementation of the supply chain.
Proof:
Decentralized Decision Making
Retailers and suppliers will make decisions according to their own profit maximization principle
under decentralized decision making. Since we assume that the supplier first determines the
wholesale price, the retailers decide the retail price, so according to the inverse regression, do
partial derivative of formula(4) sum, and make its partial derivative is zero, the solution:

a 2 w
p (5)
2 2

l
w a
2 2
(6)

In order to let expression is simple, and easy to discuss, make:

m 2 2
m>0 (7)

Take the formula (5), (6), (7) into the formula (1) expression can be obtained after finishing the
demand function:

D m(a w) (8)

Take the formula (5), (6), (8) into the formula (3), and take the partial derivatives of w and ,
available:

s w ma 2mw mc (9)

According to the hypothesis and extreme solution condition, its easy to know the formula (9)
exist extreme value, it can be obtained by solving the extreme value condition:

w* a c 2 (10)

Take the formula (10), (7) back into the formula (5), (6) can get, under decentralized decision
*
making, the optimal selling price pd and the most optimal PDL l , and the optimal order
*
D* :

a c m(a c)
pd * (11)
2 2
m c a
ld * (12)
2
m a c
Dd * (13)
2

104
 Take the formula (10), (11), (12), (13) back into the formula (3), (4) can get , under decentralized
decision-making ,the retailer's optimal profit and the supplier's optimal benefits:

ma c
2

s* (14)
4

R*
m2 a c 2 2
2
ma c 2

(15)
8 8

So under decentralized decision making, the performance of a supply chain

3m a c
2

d * s * R*
8
(16)

Centralized Decision Making

Under centralized decision making, it is assumed that earnings of the supply chain w* :

w max p c a p l l 2 2
p , ,l
(17)

To formula (17), respectively, taking the partial derivatives of p, , l and solving can get, under
*

the centralized decision-making, optimal sales price pw

and optimal PDL l w* , and the optimal
ordering quantity

(a c) c 2 cm 2
Dw* : pw* m a c (18)
(2 )
2

m c a
lw* (19)

Dw* m(a c) (20)

Take the formula (18), (19), (20) back into the formula (17) can get supply chain overall income
under centralized decision-making as follows:

m a c
2

w
*
A (Make it equal to A) (21)
2

Compare formula (16) and formula (21), it is easy to know:

ma c 3m a c
2 2

w*
2

8
d * (22)

In additional, compare formula (19) and formula (12), as well as the formula (20) and formula
(13), you can get:

ma c
Dw* m(a c) Dd * (23)
2
m c a m c a
lw* ld * (24)
2

Through formula (23) and formula (24) can be seen: In decentralized decision making, due to the
retailer's order and total profit of the supply chain are lower than order under centralized
decision-making and profit, so the Proposition 1 is proved. At the same time, formula (24) shows a
105
very interesting conclusion, that is: our linear demand function is abstract, under the decentralized
decision-making, the retailer PDL is actually smaller than PDL under centralized decision. It seems
counterintuitive. Because of the collaboration between suppliers and retailers under centralized
decision-making , should make the time of delivery of goods much shorter, but why the
collaboration time become longer here? One possible reason is due to the centralized decision
*
making retailer's optimal order D significantly bigger. This causes under the centralized
w

decision-making while a single commodity commitment is shorter , but the promise of all the goods
delivery time is longer. About the further reasons for this phenomenon and influence on
decision-making, we will also continue to study in the future.

Revenue Sharing Contract Model

The Revenue Sharing Contract was first originated in the United States in the leasing industry, and
achieved great success in the industry in the operation, and then gradually expanded to other
industries. In the contract, the supplier first sell goods to retailers with their wholesale price
w which is close to or even lower than the manufacturing cost, retailers sell them with the market
r

sales price p and get profits; in addition, in order to make up for the loss of supplier, retailers can
only get their own gains at the rate of (Shared distribution coefficient, and prior
consultation).And then return the rest of (1 ) to the supplier, and ultimately ensure that the
benefits of both levels higher than the decentralized control status under the contract, or even
achieve the optimal performance of supply chain under centralized decision-making.
Proposition 2: price, the PDL are as the core of e-commerce platform where product quality
guaranteed, When meet wr c , revenue sharing coefficient 2U ma c revenue
Rr
2

sharing contract can coordinate the supply chain, and at this point in the supply chain overall
income is equal to the overall revenue under centralized decision-making supply chain.
Proof:
Model analysis:
According to the previous description, we can get retailers expected earnings under revenue
sharing contract, which is a shared partition coefficient:

Rr max p , l p wr a p l l 2 2 (25)

According to the extremum solution condition, its easy to know Retailers under the condition of
satisfy the premise of maximal profit, p and l in the formula (25) first order partial derivative
should be zero, through simplification can be:

a 2 wr
p (26)
2 2
l
a wr
2 2
(27)

Then take the formula (26), (27) and (7) into the formula (25) and simplifying, we can get
retailers the optimal expected revenue under revenue sharing:

Rr * m2 a wr m2 a wr 2 2 m wr a 2
2 2 2
(28)

106
 Because the supplier is a pioneer, so supplier should provide revenue sharing contract , w to r

retailer, at the same time, assuming that the retailer's retained earnings is U , the retailer's Rr

participation constraint as follows:

Rr U Rr (29)

To solve the model:

Assumption under the revenue sharing contract, the supply chain can achieve coordination, the
description depending on the model should be:

Sr 1 Rr
* *

(30)
Rr Sr w

* *

Take the formula (28) and formula (21) into the formula (30) can get:

m a wr 2 ma c
2 2
2 (31)

Comparison on both ends of formula (31), its easy to know when w c , formula (31) is r

established. In addition suppliers should allow retailers to participate in this contract, as long as
formula (29) the equality can be established, that is:

Rr * U Rr (32)

At this point in the supply chain the market sales price pr * , r

*
PDL l , and market term D
r
*
should
meet:

cm 2
pr * m a c (33)

m c a
lr * (34)

Dr * m(a c) (35)

In addition, in the case, the supply chain revenue sharing coefficient should satisfy:

m a c
2

U Rr
A (36)
2

2U Rr
(37)
m a c
2

wr c Rr * U Rr
Therefore, when and , revenue sharing contract can coordinate the supply
ma c
chain, the proposition 2 is proved. Revenue sharing coefficient at this time is 2U Rr
2

Conclusion
This paper do research considering a linear function contains price, fixed PDL to depict demand
characteristics in which having a good quality reputation e-commerce platform. The demand
function to a certain extent, objectively reflect the customer's demand features; then under the
constraint of the demand function, we have studied the newsboy models simple operation of supply
107
chain. Study shows that: if the supply chain consider price and the promise delivery lead-time under
the condition of linear demand , the supply chain cannot achieve coordination under wholesale price
contract , at the this time, the supply chain presented an interesting condition. The optimal ordering
quantity and the supply chain's overall revenue under decentralized decision making are smaller
than optimal quantity and the overall yield under centralized decision-making, but at this time under
decentralized decision making optimal PDL is better than the PDL under centralized decision
making. This is a phenomenon that never happened in previous studies. In addition, this paper also
improves the wholesale price contract by using the revenue sharing contract. The results show that
when the supplier's wholesale price is equal to the cost of his production, at the same time, the
supply chain can achieve coordination. By the time, retailers obtain total revenue of A , and
suppliers get the rest of the 1 A .

References
[1] Liao CJ, Shyu CH. An analytical determination of Lead Time with normal demand[J]. Int J of
Operations and production management, 1991, 11(9): 72-78.
[2] Ben Daya M, Raoutf A. Inventory meodels involving Lead-time as decision variable [J]. J of
the operational research society, 1994, 45(5):579-582.
[3] Liang Yuh Ouyang, Hung chichang. Lot size reorder point inventory model with controllable
Lead time and set-up cost[J]. Int J of system science, 2002, 33 (8):632-635.
[4] K. palaka, S. Eelebacher, D.H. Kroop. Lead time setting, capacity utilization, and pricing
decisions under leadtime dependent demand[J]. IIE transactions,1998, 30(2):151-163.
[5] S. Ray, E. M. Jewkes. Customer lead time management when both demand and price are lead
time sensitive [J].European Journal of operational research, 2004, 153 (3):769-781.
[6] Shao Jianjun, Ke Dagang, Wang Junping. A price and delivery time decision model for
substitutable products in duopoly markets [J]. Systems engineering, 2007, 25 (11): 41-47.
[7] Ma Shihua, Wang Fushou. Study on the decision mode of supply chain for time-sensitive and
price-sensitive demand [J]. Chinese management science, 2006, 14 (3): 13-19.
[8] Li Yibin, Chen Rongqiu. Study on coordination decision of pricing and quotation of lead-time
in BTO environment [J]. Industrial engineering and management, 2010, 15 (5): 22-28.
[9] Li Yina, Ye Fei, Xu Xuejun. Cost allocation model for optimizing supply chain inventory with
controllable lead time [J]. Journal of System Engineering 2009, 24 (1): 9-17.
[10] Stidham S. Pricing and capacity decisions for a service facility stability and multiple local
optima[J] . IIE transactions, 1998, 30(2):151-163.

108
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Influence of Consumer-Based E-business Brand Equity on Websites

Jing MA
Dalian University, China
Email: dl_majing@126.com

Keywords: Consumer-based e-business brand equity, Web-market outcomes, Five dimensions.

Abstract: Brand Equity has caused more attention with the development of consumers web
shopping. This study explored the cause-and-effect between consumer-based E-business brand equity
and websites outcomes, and it found that consumer-based E-business brand equity was the
predecessor of websites outcomes. Based on literature review and in-depth interviews, a research
model was developed. The model can be used to evaluate native E-business brand equity from both
consumers perspective and market perspective. The former was composed of five dimensions
including loyalty, perceived quality, customer experience, trust and awareness, and a mechanism was
formed to explain the relationship between them. The latter included click-through rate, stickness and
revisiting rate. We appoint two websites to check it. In conclusion, The research provided a useful
and practical model for further study on E-business brand equity.

Introduction
Brand equity has become the main subject of increasing research attention over the past two decades.
There are three different perspectives evaluating an off-line brand, i.e. customer mind-set,
product-market and financial market outcomes. These researches focus on the measures of brand
equity, but seldom focus on the relationship among those 3 measures. Especially, it still remains
blank in the research of online environment. This paper explores a model for evaluating E-business
brand equity that is based on the relationship between consumer-based brand equity and web-market
outcomes, and explains the most important structure of E-business brand equity.

Literature Review

Three Measures of Off-line Brand Equity

Consumer mind-set can be also called consumer-based measure. Its measures assess the awareness,
attitudes, associations, attachments, and loyalties that customers have toward a brand and have been
the focus of much academic research and industry offerings. These measures are rich in that they
assess several sources of brand equity, have good diagnostic ability, and can be used to predict a
brand's potential. However, because the measures are typically based on consumer surveys, they are
not easy to compute and do not provide a single, simple, objective measure of brand performance.
Consumer-based Measures of Online Brands
Online brand equity researches can be seen as complementing traditional off-line brand equity. The
off-line measures were discussed in details by Aaker and Keller. The recent scholars employed
implicate their theories, and conducted different models in order to evaluate practical issues in online
environment.
Online Researches Based on Aakers Theory
Aaker defined brand equity as a set of brand assets and liabilities linked to a brand, its name and
symbol, that add to or subtract from the value provided by a product or service a firm and /or to that
firm's customers. Aaker's brand equity ten is classified into five categories. The first four categories
reflect customers evaluation of brand on the four dimensions of brand equity (loyalty, perceived

109
quality, associations and awareness), while the fifth category encompasses two market behavior
measures for which information is not collected directly from consumers.
Online Researches Based on Kellers Theory
Keller defined customer-based brand equity as: the differential effect of brand knowledge on
consumer response to the marketing of the brand. Brand knowledge is conceptualized as an
associative network memory model consisting of two dimensions: brand awareness and brand
associations in consumer memory. Positive customer-based brand equity occurs when the customer is
aware of the brand and holds strong, unique and favorable brand association in memory.
Jin Liyin developed a research model that can be used to evaluate native web brand equity from a
web contents perspective .The whole brand equity is composed of five dimensions such as brand
loyalty, perceived quality, brand relationship, brand experience and brand attraction. The results
show that perceived quality, brand experience and brand attraction are important in driving brand
relationship and brand loyalty.

E-Business Brand Equity Models

Based on both literature review and the depth interviews with experts (5 depth interviews with online
branding experts and 30 university student s who do e-shopping frequently), the dimensions that were
found to be the most appropriate for the purpose of evaluating customer-based E-business brand
equity and web-market outcomes are shown in Figure 1. Moreover, we analyze the relationship
between consumer-based brand equity and web-market outcomes

Relationship between Consumer-based Brand Equity and Web-market Outcomes

E-business brand equity can be measured by consumer-based brand equity or web-market outcomes.
Usually, researchers look them as two independent measures to evaluate brand equity. But we find
that there is consequence between them. Consumer-based brand equity is the antecedent of market
outcomes. E-business brand equity is a chainlike structure. It starts from consumer-based brand
equity, and the accumulative value will lead to increasing web-market outcomes
We define consumer-based E-business brand equity as the differential effect of brand knowledge
of E-tail on consumer response to the marketing of the E-business brand; web-market outcomes is
defined as the marketing effects or outcomes that accrue to a web with its well-known brand name
compared with those that would accrue if the same web has unknown brand name.
To E-business brand equity, consumer-based brand equity as a source of E-business brand equity
will bring the effect of market outcomes increase/reduction. The actual E-business brand equity must
be based on consumers awareness, association, trust and loyalty. Only consumers positive behavior
can produce market outcomes.

Figure 1. Relationship between consumer-based E-business brand equity and web-market outcomes.
Five dimensions are found to be the most appropriate for the purpose of evaluating online
E-business brand equity. They are awareness, perceived quality, experience, trust and loyalty.
Web-market outcomes includes click-through rate, stickness, revisiting rate and real payment.
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Consumer-based E-business Brand Equity
Awareness(AW) is the extension that a brand is known by customers. An E-commerces
awareness is more important than an off-lines merchant. Customers still have great chance of
bumping into some unknown off-line shops, but they have less opportunities of E-business. It is a
reason why some unknown E-tails would like to link their home pages with some well-known webs.
Awareness can be a compass that can show the direction.
Association reflects the salience of the brand in the customers mind. There are two levels of
association of E-tail web, which include: quality and experience.
Quality(QU) is customers subjective total attitudes toward a certain retail website, which is
perceived quality. It has always been an important dimension measurement E-commerce brand
equity. Perceived quality is the core construct in the Total Research approach to measuring off-line
brand equity. When it comes to E-tail service providers equity, quality can be examined by both
websites service quality and commodities quality they provide. The former requires more technical
support from web owners, and the latter largely depends on individual commodity supplier. So the
quality of E-tail relies on more than one business units. Any part will improve or destroy the
association related to quality.
Experience (EX) is a feeling that encompasses all points of interaction between the customers and
the brand in the virtual space. No matter what the website provides, website characteristics,
commodities or service, experience are always unavoidable components during customers whole
retail process. Customers can obtain fun, excitement, curiosity, adventure and etc. from online
shopping. To a valuable E-tail, making its every customer happy during a virtual retail process is very
important. Experience is affective in this study.
Trust (TR) is defined as the degree of confidence customers have in online exchanges, or in the
online exchange channel. Electronic exchanges are believed to present numerous risks to customers,
while trust appears to be especially important for creating loyalty when the perceived level of risk is
high. E-tails are considered risky, since customers lack direct contact with the company, and have to
hand oversensitive information. Online retail websites have the duty of providing their customers the
best merchandise, and the safest channel to exchange. Trust is extremely important for increasing
customers loyalty towards brands on the web.
Customer loyalty (CL) to E-tail website is defined as the customers favorable attitude toward a
certain E-tail provider, resulting in repeat purchasing/visiting behavior. Preference and favorable
attitudes presume customer satisfaction, which is generally considered as a major driver of loyalty in
online shopping. Retail web is more like a community than an exchanging spot. People having similar
hobbies and interests gather together, trade information, make friends. The special online, communal
relationship is not to sell products only, but to use it wisely in order to build solid platform to generate
substantial word-of-mouth, leading to high levels of web awareness.
Consumers visit because they expect or know they can get certain service/products and they are
sure they will be well satisfied. Hence, the awareness positively strengthens customers experience,
which brings out the first hypothesis of the study: H1. Awareness does positively effect on
experience.
Perceived quality is customer judgment to the product and service of E-tail. It can result in
customers positive attitudes towards E-tail that is partly formed by awareness. Many evidences have
shown how it works in off-line and online brand equity, but no research is on E-tail brand equity.
Unlike a single business brand, a E-tail web is affected by multifarious merchandises brands and its
own brand, and customers judgment to perceived quality could be positively changed by increasing
their recognition of any part of web. The hypothesis stating this is: H2. Awareness can directly affect
quality.
Although empirical research in this domain is scare, and associations dual-level, quality and
experience, form different levels of trust and loyalty in terms of E-tail environment, a positive effect
of customer association on trust and loyalty has been demonstrated for single online brand. The
corresponding hypothesises tested are:
H3. quality directly and positively affects trust; H4. experience directly and positively affects trust.
111
 H5. quality directly and positively affects loyalty; H6. experience directly and positively affects
loyalty.
It has been proved with many empirical researches on off-line brands. As we mentioned before,
customers perceive different risks in cyber-space. So customers trust on an E-tail web must be
different from it in traditional background. Loyalty is always customers favorable attitudes no matter
what condition it is in, and it is influenced by customers previous experience. As the positive mental
reaction to customers past e-activities, trust will influence the extent of loyalty. This allows us to
arrive at the final hypothesis of this study: H7. Trust directly and positively affects loyalty.

Methodology

Overview
In order to investigate these hypotheses, we selected two E-tails (dangdang.com and joyo.com). As
most university students have had the opportunity and experience of purchasing from such web sites,
students, the data from university students survey is representative. The information necessary to
carry out the empirical study was collected in data sample through face-to-face to undergraduates in
Dalian university. A total of 205 respondents were investigated, 151 of the respondents (73.6 percent)
resulted in valid surveys. There were 80 men (53percent) and 71 women (47 percent) in the sample.
Given Anderson and Gerbings recommendation of a minimum sample size of 150 when testing a
structural model via SPSS or LISREL, sample size of 151 appears to be adequate.

Results
The empirical validation of the structure was performed by exploratory and confirmatory factor
analysis as well as reliability analysis, following the guidelines of Churchill. Next, the extracted
dimensions were tested for their reliability, average variance extracted (AVE) and Cronbachs were
employed to evaluate each dimension. The details of Confirmatory Factor Analysis are shown in
Table 1.
Table 1. Confirmatory factor analysis.
Factor
Var Item reliability
(CFA)
Fame 0.48 0.23 0.7303
Recognition 0.52 0.28
AW
Identification 0.77 0.59
Quick recall 0.64 0.41
Confidence 0.41 0.17 0.6889
Stability and reliability 0.54 0.29
QU
Superb 0.57 0.32
Total quality 0.57 0.32
Exciting and 0.59 0.34 0.6695
fascinating 0.62 0.39
EX Fun 0.56 0.31
Enjoyable 0.56 0.31
Personalized
trust. 0.55 0.31 0.7204
brand Confidence 0.58 0.33
TR
Safe 0.75 0.56
Trustworthiness 0.61 0.37
Unconditional loyal 0.59 0.35 0.6908
Recommendation to 0.69 0.46
CL
friends Loyalty to the 0.71 0.51
E-tail brand

112
 The corresponding measures suggest a good fit of the extracted five dimensions of the E-tail brand
scale that are defined as: awareness, quality, experience, trust, loyal. Table2 explains descriptive and
correlation between main constructs, square roots of average variance extracted.
Table 2. Descriptive and correlation.
AW EX QU TR CL
AW 0.90
EX 0.34 0.92
QU 0.24 0.58 0.91
TR 0.32 0.43 0.44 0.89
CL 0.36 0.54 0.66 0.55 0.98

Conclusions
The research explores the cause-and-effect between consumer-based E-business brand equity and
web-market outcomes, and it is found that consumer-based E-business brand equity is the antecedent
of web-market outcomes. Five dimensions are used to evaluate consumer-based E-business brand
equity. They are awareness, perceived quality, experience, trust and loyalty. Three dimensions are
applied to measure web-market outcomes. They are click-through rate, stickness, revisiting rate. The
research provides a useful and practical mode for further study on E-business brand equity.

References
[1] Keller Kevin L. and Donald R. Lehmann, The brand value chain: linking strategic and financial
performance, working paper, Tuck School of Business, Dartmouth College, 2011.
[2] Woon Bong Na and Roger Marshall, Brand power revisited: measuring brand equity in
cyber-space, Journal of product & brand management, vol. 14, no. 1, pp. 4956, 2012.
[3] David A. Aaker, Measuring brand equity across products and markets, California management
review, spring, vol. 38, no. 4, 2013
[4] George Christodoulides and Leslie de Chernatony, Dimensionalising on- and off-line brands
composite equity, Journal of product & brand management, vol. 13, no.3, 2012.
[5] Christine Page, Elzbieta Lepkowska-White, E-tail brand equity: a framework for building
customer value in online companies, Journal of consumer marketing, vol.19, no.3, pp231-248, 2012.

113
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

AHP Analysis the Factors of Traditional Business Transformation and

Upgrading Based on Internet Thinking
Li-hua WANG*
China west normal university business school
Email: wanglihuascnc@foxmail.com
*Corresponding author

Keywords: Internet thinking, Traditional business transformation and upgrading, AHP analysis.

Abstract. This paper analyzes the traditional enterprises must be carried out to transform for better
survival and development. There are many factors that affect the success of the enterprise
transformation. This paper put forward eleven kind factors of transformation. To identify the key
factors that influence the transformation by AHP analysis, this paper obtain an enterprise action
road to improve business transformation and upgrading.

Introduction
Since 2015 government work report put forward, from the nation to the company, the most
popular topic is the "Internet+". What plus the Internet? The main measure is to add the traditional
business, namely the traditional business through the Internet to become a new ecological form of
thinking. Traditional business mainly include labor-intensive to produce processing-oriented
industries, the non-traditional sectors such as IT, biotechnology, etc. But the electronics industry,
footwear, dresses, optical, mechanical, manufacturing and other traditional industries should be
attributed to, but if this is another situation after they add high-tech, the star of the future industry
[1]. So the Jack Ma has said that belong to the traditional enterprise in public occasions in the next
30 years [2]. Traditional business will become a benchmark or a star of the future development of
the business in the Internet economy era not to without upgrade, if not timely upgrading, and then
will be eliminated. With the rapid development of the network economy, the traditional companies
have felt the pressure to survive, whether it is inside or outside the enterprise business needs of
traditional enterprise transformation.

Research Review
Corporate restructuring and upgrading is always accompanied by the new means. Many
academia scholars of the enterprises transformation and upgrading that doing related research, such
as the Xiang Gang, Chen Zhichao and Li Ning analysis risk transformation, it noted that innovative
companies strategic upgrading process there are significant risks to Shen Group Kunming Machine
Tool shares Ltd., for example, to identify the major risk factors and evaluate and make
recommendations transformation [3]. Zeng Gui research trade enterprises to upgrade processing,
the willingness to explore a text, were analyzed based on cost, risk and expected return [4].Wang
Jifa has been committed to the transformation of enterprise, He , Guo Nan and Chen Yongsheng
analysis Airlines and other noted company, companys resources, capabilities and environment
analysis, for corporate restructuring plan, and then build a multi-objective optimization model
bilateral match, in order to achieve the effectiveness of enterprise solutions using the weighted
membership and methods of multi-objective model into a single target and solved to obtain
matching results [5]. Zhou Hongwei thought the Internet was first proposed, mainly in the
user-centric, user experience and innovation as the king of subversive thought [6]. Chen Guangfeng
has proposed twelve major Internet core thinking, including labels thinking, simple thinking,
product thinking, thinking the pain point, fans thinking, thinking and Integrative thinking flow [7].
Thomas.L.Saaty proposed AHP (Analytical Hierarchy Process) that is a multi-objective
114
decision-making in the heavy weight of each objective method of determining the elements of the
decision relating to decompose into goals, guidelines, programs and other levels, on this basis
qualitative and quantitative analysis of the decision-making method [8].

Data Analysis
After the author summarizes a lot of information make the analyze model of three-layer structure.
The first layer is the target layer that is the goal of transformation and upgrading of enterprises. A
second layer is the first criterion layer, list three aspects relative to the enterprise transformation,
such as internal resources, industry and national levels. The third layer is layer of the second
criterion, this layer is extended and the extraction of the first criterion layer elements. According to
a conversation with the business managers, summed up the main elements of organized internal
structure, include core competencies, corporate resources, information technology and corporate
culture and capacity in this six elements; industry level is mainly on how the industry developing
status and future developing trends; the national level include policy support, the infrastructure has
been completed and social demand, etc. The above elements are arranged to form a hierarchy level
as shown in Figure 1.For all levels as well as the value determined in accordance with the relevant
guidelines with 1 to 9 scales corresponding to the scale of pairwise judgment matrix, it shown in
table 1.

Figure 1. Corporate restructuring and upgrading of hierarchy diagram

Table 1. Judgment matrix element ratios and meanings [9]

ratio Meaning
1 Element I and Element J are equally important
3 element I is Slightly more important than element J
5 I obviously more important than the elements J
7 I strongly important than the element J
9 I absolutely important than elements J
2, 4, 6, 8 Between the degree of importance of data between two or more

According to the table 1, the present structure of all judgment matrixes listed as shown in Figure
2.
A Case Study of the target layer AHP, be solved by Excel software process will be described.

115
G= . Firstly, the features of the matrix require root before it can be tested for compliance

consistency. Secondly ask their feature vectors can be used "column and the Law" and "geometric
mean", the paper choose "column and the Law", due to its intuitive and easy to understand and so
on. Each row of the matrix obtained by adding a column of three rows of the matrix W*,

W*= . Then the sum of these three numbers, the formula is 9.00 + 4.33 + 1.53 = 14.86,

followed by normalization to get the eigenvectors W= .

Figure 2. AHP analysis G/L1/L2/L3Judgment Matrix value list diagram

Then the process function calculates the matrix G, matrix W product, and then calculated the note
by the EXCEL MMULT function. The formula is MMult (array1, array2); array1 and array2
number of columns of the same number of lines, or cannot use this function. After the calculated

matrix T, T= . Then the element of matrix A multiple the element of feature vector W, then

sum of all the product, if each all the sum is same, the value is the feature matrix G root, otherwise
it needs to be summed and then averaged. For example, each element of the matrix T divided by w,
the values are 3.30,2.75,3.12, due to the different three values, so eigenvalue need to use formula,
max= . Characteristic values obtained can be consistency test, test

volume CI, C.I. = . On behalf of the G matrixs the relevant information was C.I. = 0.03.
Because of CI> 0 and therefore biased, now the introduction of R.I average random system
corrected, then get random consistency ratio C.R. Because solving formula CR = CI / RI, on behalf
of the information matrix G can be obtained CR = 0.05. When CR <0.1, the matrix G satisfies
consistency. After Excel Solver solve process, these steps get value cases listed in Table
3.According to the same algorithm can be the first criterion layer other criteria of judgment matrix
and solving cases, is to Table 4, Table 5 and Table 6 presents the results come out.

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 Table 2.Average value a number of stochastic systems

N 1 2 3 4 5 6
RI - - 0.52 0.89 1.12 1.24
Table 3.goals for solving the case of judgment matrix layer G
Columns Eigenvector
G L1 L2 L3 GW Gw/w max CI RI CR
sum W
L1 1.00 3.00 5.00 9.00 0.61 2.00 3.30 3.06 0.03 0.52 0.05
L2 0.33 1.00 3.00 4.33 0.29 0.80 2.75
L3 0.20 0.33 1.00 1.53 0.10 0.32 3.12

Table 4. matrix L1 judgment criteria layer of solving the case

Col.. Eigenvector GW/
L1 L11 L12 L13 L14 L15 L16 GW max CI RI CR
sum W W
L11 1.00 1.00 1.00 1.00 1.00 1.00 6.00 0.15 1.00 6.50 6.04 0.01 0.12 0.07
L12 1.00 1.00 2.00 2.00 2.00 0.50 8.50 0.22 1.34 6.15
L13 1.00 0.50 1.00 2.00 2.00 1.00 7.50 0.19 1.13 5.90
L14 1.00 0.50 0.50 1.00 2.00 0.50 5.50 0.14 0.80 5.68
L15 1.00 0.50 0.50 0.50 1.00 0.50 4.00 0.10 0.63 6.13
L16 1.00 0.50 1.00 2.00 2.00 1.00 7.50 0.19 1.13 5.90

Table 5. Guidelines layer L2 judgment matrix solver Fact Sheet

Eigenvecior
L2 L21 L22 L23 Col.sum GW Gw/w max CI RI CR
W
L21 1.00 3.00 7.00 11.00 0.69 2.03 2.95 2.95 -0.02 0.52 -0.04
L22 0.33 1.00 2.00 3.33 0.21 0.64 3.09
L23 0.14 0.50 1.00 1.64 0.10 0.31 2.97

Table 6. Criteria layer L3 judgment matrix solver Fact Sheet

L3 L31 L32 Col.sume Eigenvector W GW Gw/w max CI RI CR

L31 1.00 3.00 4.00 0.75 1.50 2.00 2.00 0.00 0.00 0.00
L32 0.33 1.00 1.33 0.25 0.50 2.00
From the above tables data can be found in line with CR < 0.1 at every level, which are in line
with the judgment matrix consistency requirements. Then using a simple weighted sum method, it
can be related to the layer L1 (enterprise internal) the right of the first criterion highest weight,
showing the various elements within the enterprise should be the focus of the transition process.
The second criterion level in more prominent there L11 (organizational structure), L12 (core
competencies), L13 (Enterprise Resource), L16 (Information Technology), L21 (national policy), L31
(industry status), their values are greater than 1.00. These factors are key elements of the transition
to be overcome.

Corporate Action Path

After the above analysis we can work out the traditional thinking in the Internet business
transformation road map shown in Figure 3.Create difficult to imitate of core competitiveness of
enterprises. Whether traditional economy or the Internet economy, companies want to survive
long-term, they must identify their core competencies. In contradistinction, whether large or small,
the product quality of micro enterprise is the strongest vitality. The future of marketing is more
word of mouth marketing, product quality is the core and critical reputation, focusing on improving
the quality of products to achieve lower costs and the value of innovation, is the key to the
transformation of traditional industries of the Internet era. Under Internet thinking, the user
experience has become a core business concerns, and everything around the user for product design
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and development, sales and after-sales service, the response speed of product design and production
line will become the next bottleneck. Economic competition is competition speed Internet age, and
who respond faster, will have the initiative and the right to life, otherwise it will be eliminated. Core
competitiveness of enterprises have mainly analyzed according to their own characteristics and
ultimately determine a focal point, major breakthroughs, other companies cant be copied and
imitated competitiveness, such as the native enterprises mainly in product features as the core
competitiveness. Competitiveness of logistics enterprises to access, smooth transmission speed to
win, and so on.

Figure 3.Transformation and upgrading of traditional business path diagram

Restructuring organization, the formation of a team is the form of a flat structure. Organizational
structure of the traditional enterprise emphasis on multi-level management system, the complex
institutional mechanisms for the development of the Internet era of economic enterprise has a
serious impediment, since the level range so slow response speed. Modern economy is the speed of
the economy, so companies will gobble fast response slow response of business, if the company will
be forced out slow. In order to respond quickly, enterprises must change the original pyramid-type
structure, and formed into a team in the form of a flat structure. Enterprises in order to adapt to the
development of the Internet have to be business process reengineering, namely to restructure the
organizational structure, so as to promote the timely development of a rapid transfer of information
and decision-making. The formation of a collaborative team from a task, within the team everyone
equal, all built around a core task to work. Of course, the team needs a leader, CEO and team
leaders directly lead. Therefore Enterprise needs to reduce the past several levels and instructions
cumbersome procedures, allowing companies to improve the capacity of processing transactions,
allowing faster.
Enterprise have the adequate resources supply to restructuring. In the transition process, the
enterprises need for resources online and offline integration, the integration process is a complex
process that requires all departments to work together, to concentrate all resources on one thing, it
requires a lot of manpower and transformation resources, companies should budget well in advance
and make a plan exactly. Companies need resources that comprise two major aspects of one
hardware resources, and software resources. Hardware resources are used in the industry need to
look at what type of equipment procurement, the procurement of hardware when the need to
consider the scalability that as technology continues to develop; there is a certain future expansion
capability. For software resources, companies can choose the appropriate way to obtain the software
according to their own characteristics, the main way to get five: independent research,
commissioned by the development, joint development, purchasing and outsourcing these five forms.
For small & micro-businesses recommend two ways to develop co-commissioned by the
procurement has developed good software and software vendors, the effectiveness of these two
approaches fast, relatively low cost, long period of self-developed, high cost.
The capability and speed of Information transportation are very important. When the enterprise
software and hardware acquisition properly, companies need to transfer and exchange with the
outside world, the original way of processing the information age is certainly not appropriate, the
immediate need to respond, since the network is usually generated by orders, Therefore, enterprises
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should set a safety stock in order to avoid large orders due to corporate chaos, the production lines
to be used fine production, which makes the original work is more accurate and rapid. If the
enterprise does not have a good plan, once the order came, the enterprise will fall into a mess,
inability to cope.
Succeed personnel training. With the development of the times, companies demand for talent is
more diverse, includes not only professional skills, but need to understand Internet-related
applications as well as international trends. At the same time, personnel requirements of the
enterprise is not limited to pay remuneration, including career development, training opportunities
and freedom, and so on. Competition in the Internet age will be more inclined to the talent
competition. More and more enterprises have recognized got talent is not easy, at the same time feel
not easy to retain talent. Many companies have carried out targeted training of professional
personnel. In the completion of their studies during the business culture of these personnel
vocational skills and professional conduct, while providing the opportunity to practice exercise.
With a grateful heart to work, it will be more dedicated.

Conclusions
This paper use AHP analysis method get the vital factors of business transformation .In order to
identify critical factor, with these actions constitute the enterprise a key factor in the action road
map, this map can guide companies through reasonable risk-averse business transformation process
arise. For example, companies need to establish other companies cannot imitate and copy the core
competitiveness to ensure our edge in the fierce competition. Express companies in order to adapt
the information transfer needs to BPR, removing non-value, redundant links. With sufficient
resources enterprises ensure the transition process does not appear the case halfway. Development
of information technology to promote the development of society, in order to meet community must
upgrading, including IT applications and the constant part of the upgrade cant be ignored, and so
on.

References
[1] Su Hanqiu, Xu Fuyuan.Entropy of traditional enterprise to SDN enterprise transformation
[J].Technology Management Research, 2009, No.9, P414-P416.
[2] Information on http://tech.163.com.2015-10-21
[3] Xiang Gang, Chen Chao, Li Ning, the major risks and countermeasures research in innovative
companies in the process of strategic transformation [J]. China Science and Technology Forum,
2012.No.3, P63-P67
[4] Zheng gui. China's domestic transformation and upgrading of processing trade enterprises to
explore the willingness [J] International Economics and Trade Research .2011.7.P10-P14
[5] Wang Jifa, Guo Nan, Wang Yongsheng, Chen Hang research models business transformation
path analysis and selection of [J] reform and strategic .2014.1. P49-P52
[6] Zhou Hongwei. Zhou Hongwui readme my Internet methodology [M] CITIC Publishing
House .2014-8-1
[7] Chen Guangfeng Internet thinking: commercial Subversion and Reconstruction [M] Machine
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[8] Jiang shaozhong Data, Models and Decisions [M] Peking University Press .2013-11

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Research of SME Financial Crisis Warning Model

Based on Neural Network

Mao-Ran ZHU, Wei FANG* and Yuan SONG

School of Economics and Management, Tongji University, Shanghai, China
*Corresponding author

Keywords: SMEs, Financial crisis warning, Neural network.

Abstract. SMEs (Small and medium-sized enterprises), as an important part of national economy in
our country, play an irreplaceable role. With the development of the economy, SMEs are facing both
opportunities and fierce competition. Compared with the mature companies, SMEs have their own
features, such as the weakness of the ability of resisting risk, the lacking of capital, deficiency in the
ability to raise funds and etc. Therefore, in the complex environment, a more suitable financial risk
early warning system is needed. In this paper, such a financial crisis early warning model of SMEs
was established, focusing on the characteristics of the SMEs, selecting the data from the SMEs listed
in the stock markets in Shanghai and Shenzhen from 2011 to 2015 as samples, choosing 13 financial
index input values, finally using the neural network tool in Matlab 2012b. The result displayed that
the model is suitable for SMEs, and the accuracy is high.

Introduction
SMEs play an important role in our country national economy, which have made the tremendous
contribution for our country's rapid economic development, created a large number of employment
opportunities. However, with the continuous development of economic globalization, the SMEs are
facing the opportunities and the intense competition at the same time. Compared with the mature
large companies, the SMEs have their own characteristics, such as the weakness to resist the
management risk, the lacking of capital, the poor ability to raise funds and etc. All these
characteristics make the SMEs easier to fall into financial crisis. According to the U.S. fortune
magazine, the relevant data showed that the expectation of SMEs life were less than seven years.
Some other data told us that the expectation of SMEs lifespan in our country was only 2.9 years.
According to what has been discussed above, in order to avoid the SMEs fall into the financial crisis
and collapsed, it is very necessary to set up a financial crisis warning for the SMEs.
The financial crisis refers to the enterprise loss of ability to repay their matured debt. Once the
financial crisis or bankruptcy happens, it will cause the huge loss, unemployment and the failure of
debt recovery, thus directly affecting the country's economic development and social stability. So it is
essential to become aware of the financial crisis as early as possible and take the necessary measures
to intervene. Financial crisis warning system is the mechanism to discover and resolve the financial
crisis. The common methods are mainly qualitative analysis and quantitative analysis of two kinds.
Dalkey and Helmar from the Rand Corporation proposed the Delphi method in 1964, known as the
expert investigation method, is the most widely used method of qualitative analysis [1]. Beaver is the
founder of the modern financial crisis early warning. He is the first one to use the statistical analysis
method, with univariate analysis to construct financial crisis early warning model [2].Beaver pointed
out that the security of debt and the asset-liability ratio is important index to judge whether a company
is in the financial crisis, the closer to the failures, the lower the error rate would be. Followed by an
American scholar Altman, who used the "operating assets/total assets" and the "retained
earnings/total assets" and other five indicators to establish a multivariate model named Z-score
method [3]. Martin used the logit model to establish the financial crisis early warning model firstly
[4].
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 With the development of data mining technology, some scholars also began to use data mining
technology in financial crisis early warning. Odom and Sharda adopted Altmans five financial
indicators, selecting 65 normal companies and 65 failed companies as samples, to establish the early
warning model of neural network [5].Sung, Chang and Lee proved that, in the changing economic
environment, using model based on inductive rules method to predict bankruptcy can be more
accurately than using multiple discriminant analysis model [6]. Myoung-Jong Kim and Ingoo Han
analyzed the advantages of using the genetic algorithm to precidt bankruptcy [7]. In addition to the
above methods, Frydman used the decision tree theory [8], Elmer and Borrowsk used expert system
[9], Dimitras used rough set theory [10], Zopounidis used multicriteria decision theory [11]. They all
built the financial risk warning model respectively.Feng Yu Lin and Sally McClean used data mining
method to warn the early financial risk basing on four independent methods (Discriminant analysis,
Logistic regression, neural network and decision tree method) [12]. They tried different combinations
of these methods, established three hybrid model and made the empirical analysis. The results showed
that under the same conditions, mixed model was better than single method.
In our country, financial crisis warning research started relatively late, the scholars mainly use
statistical methods to modeling: Wu and Lu established related logistic regression, Fisher
discriminant and linear probability model [13]. Liang and Guo combined the logistic model with the
random effect, and testified that the model was superior to the traditional logistic model [14]. Xu and
Shen proposed an analysis framework combining internal control and financial crisis early warning
[15]. Wu proposed the analysis framework embedded stakeholders behavior and two kinds of basic
power to influence the enterprise's financial situation as the main object of the financial crisis warning
and the related sensitivity analysis method [16]. Li set up a financial crisis early warning model based
on the appropriate financial indicators and genetic algorithm [17]. Zhao proposed a model using the
concept of enterprise financial risk hierarchy tree model and time series dynamic maintenance [18].
According to the literature review, we can know that although many different method were used to
establish the relative model, it is still needed further improvement in the changing environment. In
this article, the method based on neural network was used to establish the financial crisis warning
model for the SMEs, paying more attention to the characteristics of SMEs growth and risk on the
choice of financial index.

The Theory of Financial Risk

The financial crisis refers that the enterprise is unable to repay debts, facing difficulties and crisis. It is
also known as the financial troubles. The financial crisis is not an accident, but a process of gradual
development. It is a certain degree of extreme performance of financial risk. There is two ways to
confirm the financial crisis: one is the enterprise bankruptcy. Companies cannot continue to operate in
accordance with legal procedures to file for bankruptcy. It is one of the largest financial crisis for the
enterprises. Another is that the listed company was special treated or delisted. Continuous losses or
low level of shares price will trigger a financial crisis. According to what is mentioned above, we
know that the financial crisis has the following characteristics:
Accumlation: The financial crisis reflects the financial failure of the internal financing, operation,
distribution and a series of business activities in a certain period. Through the accumulation, these
mistakes make the latent financial risk into financial crisis.
Burstiness: Financial crisis is determined by many subjective and objective factors. Some of the
factors can be controlled, but some are explosive.
Diversity: Financial crisis is not the result of one single incident, but the comprehensive influence
of multiple events.
Catastrophic: Whether enterprise bankruptcy or special treatment of a listed company, financial
crisis will bring disastrous loss.

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Financial Risk and Financial Crisis
Financial risk is objective existence. In the process of development, enterprise will encounter all sorts
of risks. If the enterprise can notice these risks, timely take corresponding measures to resolve the
risk, the business will get better development. If the potential financial risk of the enterprise is unable
to be discovered or downplayed after noticed, the financial risks will worsen into a financial crisis.
Therefore the final result of a neglected financial risk is financial crisis, but not all financial risk will
develop into the financial crisis. If companies can pay attention to the financial risk in the primary
stage, it can avoid the financial crisis. In different industries, the enterprises have different financial
risk and financial crisis. It requires that enterprise should objectively evaluate the enterprise's
financial position, to ensure a healthy enterprise financial operation smoothly. In this paper, the SMEs
have their unique risk, when choosing relevant indicators should be especially considered.

The Neural Network and its Algorithm

Artificial neural networks (ANNs) is a mathematical model for distributing parallel algorithm of
information processing, which imitates animal neural network characteristics. The network depends
on adjustment of the internal relations between large amounts of nodes connected in the complex
system to achieve the purpose of processing information. And it also has the ability of self-learning
and adaptive.
Multilayer feed-forward Network is a common neural network structure. It mainly consists of three
parts: input layer, output layer and hidden layer. Multilayer feed-forward Network is a common neural
network structure. It mainly consists of three parts: input layer, output layer and hidden layer.
Input layer is the neurons which are used to accept large nonlinear input information called the
input vectors.
Output layer is the result from the information transmission, analysis and trade-offs in the neuronal
links. It is also called the output vectors.
Hidden layer is composed of huge amount of the neurons between the input and output layer. The
amount of hidden layer nodes (neurons) is not fixed, but what we can know is that the more the
neurons, the more significant the neural network nonlinear and the robustness of the neural network
will be. It is accustomed to use t 1.2 to 1.5 times of the amount of input layer nodes as the amount of
nodes in the hidden layer. The Fig.1 is the basic structure of the neural networks:

Figure 1. The basic structure of the neural networks.

The characteristics and the advantages of the neural network is mainly manifested in three aspects:
Self-learning function which has special important meaning for predicting. Associating storage
function which can achieved by the feedback network. The ability to search the optimal solution at a
high speed which can give a full play to the computer's high speed operational advantage.
Based on the advantages stated above, this article used the neural networks method to finish the
data training, in order to establish the financial crisis warning model for the SMEs.

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Modeling

Sample Selection
In this article, we chose the sample companies with the ST sign, which means the companies were
special treated because of loss in the past two years, defined them as the ones in the financial crisis.
The others were defined as the ones without financial crisis. We selected 748 companies from the
SMEs listed in the stock markets in Shanghai and Shenzhen from 2011 to 2015 as samples, 70% of
them were training set, 15% of them were testing set, 15% of them were examining set.
Due to the two consecutive years of loss, a company would be special treated in the third
accounting year. For the reliability and accuracy of the result, the data in the first three year (year t-3)
should be selected to predict whether the company would be special treated in this year (year t). For
example, in order to predict whether a company would be special treated in 2015, its related data in
2012 to 2014 should be tested. All the data in this article were from sina.com and CSMAR database.
Financial Index Selection
Considering the characteristics of SMEs, we paid attention to both traditional financial index and the
untraditional index which not only reflect the debt paying ability but also the level of the risk and the
growth ability. After screening, 13 index which are listed below in Table 1 are picked out to be the
model index. The index of debt paying ability show the situation of liabilities and assets can pay for it.
If the liability proportion is too high, the company is in the high risk. The second row show the
operation ability and the third row is the ability to profit. If a company has a high ratio in this two
parts, it means that the company has more capacity to face the risk. The forth row show the financial
risk and the operation risk and the last row show the ability of growth. Compared with the big
enterprise, the risk of SMEs and the growth ability are more influential.
Table 1. Index of financial crisis warning for SMEs.

Ability Index Formula

Debt paying ability 1.Current ratio
2.Asset-liability ratio
3.Cash flow of the debt ratio
4.Time interest earned ratio
operation capacity 5.Current asset turnover
6. Inventory turnover
7. Accounts receivable turnover
profitability 8. Return on Sales
9. Return on assets(ROA)
The level of risk 10. Degree of operating leverage
(DOL)
11. Degree of financing leverage
(DFL)
Growth ability 12. Growth of ROE
13. Growth of Sales
Part of the data were shown in Table 2:
=Current Assets/Current Liabilities
=Total Liabilities/Total Assets
=Operating activities net cash flow / Total
Liabilities
=EBIT/Interest cost
=Sales Revenue/ Current assets ending balance
=COGS/ Average inventory balance
=Credit sales revenue /Average Accounts
Receivable balance
=Selling profit/ Sales Revenue
=Net profit/Total Assets
=(Net profit + income tax expense +Finance
expense+ Depreciation and amortization)/(Net
profit + income tax expense +Finance expense)
=(Net profit + income tax expense +Finance
expense)/(Net profit + income tax expense)
=( The final return on equity - The initial return on
equity)/ The initial return on equity
=( The final sales revenue - The initial sales
revenue)/ The initial sales revenue

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 Table 2. Part of the data of Samples.

Stock Code 002001 002002 002003

Date Due 2014-12-31 2014-12-31 2014-12-31
Current ratio X1 2.7052 0.5241 2.8935
Asset-liability ratio X2 0.2311 0.7093 0.1513
Cash flow of the debt ratio X3 0.5537 -0.0210 1.0329
Time interest earned ratio X4 14.4366 3.4149 116.7786
Current asset turnover X5 0.7894 1.3465 1.9890
Inventory turnover X6 2.0123 9.1750 5.5871
Accounts receivable turnover X7 4.9926 7.2047 10.2188
Return on Sales X8 0.1940 0.1044 0.1366
ROA X9 0.0951 0.0503 0.1086
DOL X10 1.3216 1.2959 1.3752
DFL X11 1.0591 1.3349 1.0065
Growth of ROE X12 -0.4268 -0.3368 -0.5305
Growth of Sales X13 -0.2628 -0.1756 -0.5444
Note: the data are from CSMAR database
The Normalized Processing of Index
As we all know, the index mentioned above described the SMEs from different angles with different
dimensions. This will cause the problem to compare them with each other. So before the neural
network training, all the original data should be normalized to eliminate the influence caused by
different dimensions. There are many methods to normalize. According to the peculiarity of the
selected index, the linear dimensionless method was selected which was shown as follows:
To the index which is the less the better: Let the minimum to be 1 and the maximum to be 0. The
other index score= (current value-maximum) / (minimum-maximum).
To the index which is the larger the better: Let the maximum to be 1 and the minimum to be 0. The
other index score= (current value-minimum) / (maximum-minimum).
The Structure of Network and Parameter Setting
The theory of Kolmogrov has been proved that a neural network, having three layers of the neuron,
can approximate any continuous function as long as there are enough hidden nodes. So our model
uses the neural network with three layers of the neuron.
The index in Table 1 will be used in the SME financial crisis warning model, so the amount of the
input layer neurons is 13.The output is our evaluation of financial crisis situation of SMEs, therefore,
the output value is 1 or 0. The amount of the output layer neurons is 2, which represent the possibility
of in the financial crisis and out of the financial crisis. When the output is close to 1 means the
possibility is high. When the output is 0 means possibility is low. The amount of the neurons in the
hidden layer is very important. It not only has a great influence on the performance of the neural
network, but also the reason of over-fitness. But until now, there is not a scientific method to
determine it, so in this article we use the trial and error method to determine that the amount of the
hidden layer neurons for 7.
In conclusion, the structure of the neural network for SME financial crisis warning is 13*7*2, the
initial value of the weights and threshold of each layer is a random number between 0 and 1.
The Training Process of the Model
In this article, the input value and output value of the hidden layer and output layer were calculated by
using S-shaped function. The input of the hidden layer is showed as Eq(1). The output of the hidden
layer is showed as Eq(2).
n
Sj =
i =1
ij x j j (1)

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 1
Oj = (2)
1 + e SK

ij is the connection weight between the input layer neuron i and the hidden layer neuron j. All the
ij make up a weight matrix W. j is the threshold of the value of neuron j in the hidden layers, S j is

the input value of the hidden layer, and O j is the output value of the hidden layer.
The input value to the output layer is showed as Eq(3), the output value is showed as Eq(4).
n
Sk = u
i =1
jk O j k (3)

1
Yj = (4)
1 + e SK

ujk is the connection weight between the hidden layer neuron j and the output layer neuron k, All
the ujk make up a weight matrix U. k is the threshold of the value of neuron k in the output layer,
Sk is the input value of the output layer, and Y k is the output value of the output layer.
We defined the difference between the output value from the neural network and the actual result
from the samples as the corresponding measure error E r . All the E r make up an error matrix E.

1 l
Er = (Tk Yk )2
2 k =1
(5)

1
E = Er (6)
r

ij ujk
Then the model recalculated and amend the connection weight and from the output layer to the
input layer. The formula are mentioned as follows.

ij ( P + 1) = ij ( P ) + j O j + (ij ( P ) ij ( P 1)) (8)

u jk ( P + 1) = u jk ( P ) + k Ok + (u jk ( P ) u jk ( P 1)) (9)

0 < < 1, 0 < < 1

In this formula
k , j is showed as below:

m
j = O j (1 O j )
k =0
k kj (10)
k = Yk (1 Yk )(Tk Yk ) (11)

Tk is the expectation of whether the sample company is in the financial crisis. jk (P) represents the
connection weight between the output neuron k and the hidden layer neuron j at the Pth time. The
momentum factor can control the learning speed and performance of the model. After multiple
iterations, the neural network self-training would be ended, when the error matrix E is lower than the
given error , otherwise the network would be continue to self-training.

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Experimental Results and Analysis
From the above part of the paper, we know that the amount of the output layer neurons is 2, which
represent the possibility of in the financial crisis and out of the financial crisis. When the output is
close to 1 means the possibility is high. When the output is 0 means possibility is low. For example,
when the output is (0.9,0.1), it means the possibility of in the financial crisis is 90% and the
possibility of out of the financial crisis is 10%. So the model will affirm this company has the
problem of financial crisis. We selected 748 companies from the SMEs listed in the stock markets in
Shanghai and Shenzhen from 2011 to 2015 as samples, chose the index in Table 1 and had the
normalized processing, then, utilized the tool box in the MATLAB R2012b to train the model and
finally get the results showed in Table 3. (The training process are showed in Fig.2)

Figure 2. The neural network training process.

Table 3. The output of neural network training.

Schedule 2011 2012 2013 2014 2015

Actual in financial crisis, classified as having 50.9% 57.4% 58.1% 64.6% 64.9%
crisis by the model
Actual out of financial crisis, classified 32.3% 29.7% 30.3% 29.8% 30.3%
as not having crisis by the model
Total 83.2% 87.1% 88.4% 94.4% 95.2%

The second line in Table 3 showed us that the proportion of the companies which was classified as
having financial crisis and actually were in the financial crisis. The third line in Table 3 showed us
that the proportion of the companies which was classified as not having financial crisis and actually
were not in the financial crisis. The total proportion of these was the accuracy of the model. From
forth line of Table 3, we can see that after being trained by the neural network, the prediction accuracy
was higher than 80%, and the closer to the forecast year, the higher the accuracy was. Furthermore,
from the result of Matlab training, the MSE of the training set, the testing set and the examining sets
are 2.16e-2, 1.119e-2 and 1.906e-2. As we all known, the smaller MSE means the higher prediction
accuracy. Therefore, it is considered that the training got a good result.
At last, using the ST Yuanda (Stock Code: 002417) as an example, which was specially treated in
2014, to show how it works. The relative data in 2011 was showed as follow:
X1=1.9230, X2=0.4466, X3=-0.1705, X4=29.6043, X5=0.5392, X6=0.9818, X7=1.6787,
X8=0.0401, X9=0.0838, X10=1.2581, X11=1.0309, X12=0.3399, X13=-0.2091, put them as the
input value into the model, the output is(0.9963,0.0027), which means the possibility of in the risk is
0.9963, and the possibility of out of risk is 0.0027. Comparing the output in the both situation, the
model predicted the company would have a financial crisis in 2014. The result is right. Fig.3 showed
the process in which the neural network works.

126
 Figure 3. The flow chart of neural network prediction.

Conclusion
In this article, a SME financial crisis warning model has been established. In the model, 13 financial
index were selected as the input value which show the SMEs financial abilities such as debt paying
ability, operation capacity, profitability, the level of risk and their growth ability. The Matlab2012b
was used to establish and train the neural network, the results indicated that the closer to the forecast
year, the higher the accuracy is. We used the company ST Yuanda as an example to show the
predicting process. We can know that due to the self-learning and the nonlinear processing capacity of
neural network, our financial crisis early warning model has a higher accuracy.
However, with the continuous development of economic globalization, the environment is
constantly changing. The model still need more practice to fit the changing business environment, in
order to make more accurate judgment.

Acknowledgments
The authors are grateful to the referees for their insightful comments which have significantly helped
improve the quality of the paper.
This work is supported by Research Path of Docking Made in China and Germany Industry 2025
Foundation

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128
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Improving the Public Investment in Science and Technology

Research and Living Field
Jing-yu HUANGa, Xiang-hui MENGb,* and Nan WUc
School of Economics, Jiangxi University of Finance and Economics, Nanchang, Jiangxi, P.R. China
Email: a1013706167@qq.com, bmxhsmile@sina.com, c893279862@qq.com
*Corresponding author

Keywords: Science and technology Research fields, Living fields, Public investment policy.

Abstract. This paper points out that the investment in Chinas public sector is nearly 19.18% of GDP
in 2012. However, the public investment in living (society) areas is only 3.47% of GDP. The
investment that used in scientific researches, technical services and geological prospecting areas is
only 0.48% of GDP. We should improve public investment policies in science and technology
research and living filed, and build a long-term economic growth model that tolerance and
sustainable.

The Great Significant of Improving the Public Capital Investment in China's Science and
Technology Research and Living Field
There is no doubt that the progress of science and technology level is the first motive force in the
long-term economic growth. However, what is the real meaning of economic growth? It is the growth
that only for growth in numbers, or a growth that take all of the national welfare as the ultimate goal.
The answer concerns value judgment and moral demand on economic growth. The growth pattern that
only for growth makes the ordinary citizens cant enjoy the fruits of sustained economic growth, and
this kind of growth leads to serious social income gap and the resources and environment problems.
Its an intolerance and unsustainable growth mode. However, the growth mode that takes all the
national welfare as the ultimate goal can arouse the happiness of the nation and enthusiasm to
participate in the economic and social development. It is obvious that this is a safeguard mechanism
of a country's long-term balanced economic growth. We should notice that we can't measure the
national patriotic enthusiasm with opportunism of the lazy people.
Therefore, a country or region must promote the progress level of science and technology to keep a
long-term balanced growth. Through the progress of science and technology can build an
environmental mechanism and breakthrough the bottleneck of economic and social sustainable
development, it must keep a tolerance, universality, sustainable and long-term economic growth
pattern when science and technology promote economic growth. In order to keep a real economic
growth model which will advantage to economic structure optimization and the whole society welfare
promotion, a modest slowdown in economic growth may be a better choice. In order to achieve the
combination of the two above, the government-led public investment policies may be a better choice.

Current Situation of China's Public Capital Investment in Science and Technology Research
and Living Field
According to latest statistics, China's annual spending of research and development (R&D) is 1.1906
trillion yuan in 2013, an increase of 15.6% over the last year, accounting for 2.09% of GDP, and the
spending of basic research is 56.9 billion yuan. It should be noted that the spending include labor and
daily office expenses, which is different from the concept of capital expenditures that refer to the
behavior of fixed capital formation. According to the statistical caliber of the National Bureau of
Statistics of the Peoples Republic of China, this paper holds the the idea that the formation of the

129
public capital is the fixed capital investment behavior which invest into the nine major industries
pubic fields by industry standards in the fix capital investment index, including: (1) the fixed capital
investment in the electric power, gas and water production and supply industry (A1); (2) the fixed
capital investment in transportation, warehousing and postal and telecommunication services
industry(A2); (3) the fixed capital investment in scientific research, technical services and geological
exploration industry (A3); (4) the fixed capital investment in water resources, environment and public
facilities management industry (A4); (5) the fixed capital investment in residents service and other
services (A5); (6) the fixed capital investment in education (A6); (7) the fixed capital investment in
health, social security and social welfare (A7); (8) the fixed capital investment in culture, sports and
entertainment (A8); (9) the fixed capital investment in public administration and social organizations,
etc. (A9). Among above items, (1) to (4) can be incorporated into the productive (economic) public
investment category, (5) to (9) can be incorporated into the living (social) public investment category.
According to the current international competition and internationally competitive industries system
in China, the fixed capital formation that the government finances to strategic emerging industries can
also be classified as public investment category, but due to the lack of relevant data, it does not added
into the total pubic investment for the time being.
According to the definition of public sphere and public capital, this paper estimates nine industries
fixed assets investment in the field of China's public sphere from 2003 to 2012, the investment in the
power, gas, water production and supply industry is around 3% of GDP on average, but the
investment in water resources, environment and public facilities management is about 5% of GDP,
and the investment in transportation, warehousing, postal and telecommunication services is up to 6%
of GDP; Overall, the investment in the field of public sphere is nearly 19.18% of GDP in 2012 .
Specific data see table1:
Table 1. The ratio of the fixed capital investment fixed capital and GDP from 2003 to 2012.
Year A1/GDP A2/GDP A3/GDP A4/GDP A4/GDP A5/GDP A6/GDP A7/GDP A8/GDP
2003 0.0292 0.0463 0.0021 0.0321 0.0018 0.0123 0.0030 0.0039 0.0159
2004 0.0362 0.0478 0.0021 0.0317 0.0020 0.0127 0.0032 0.0048 0.0152
2005 0.0408 0.0520 0.0024 0.0339 0.0020 0.0119 0.0036 0.0046 0.0158
2006 0.0397 0.0561 0.0023 0.0377 0.0018 0.0105 0.0036 0.0044 0.0138
2007 0.0356 0.0532 0.0021 0.0382 0.0016 0.0089 0.0033 0.0047 0.0119
2008 0.0350 0.0542 0.0025 0.0431 0.0017 0.0080 0.0037 0.0051 0.0119
2009 0.0423 0.0733 0.0035 0.0583 0.0024 0.0103 0.0055 0.0070 0.0139
2010 0.0391 0.0749 0.0034 0.0618 0.0028 0.0100 0.0053 0.0074 0.0141
2011 0.0310 0.0598 0.0036 0.0518 0.0031 0.0082 0.0049 0.0067 0.0119
2012 0.0321 0.0605 0.0048 0.0570 0.0037 0.0089 0.0050 0.0082 0.0116
Data sources: according to the CEInet Statistics Database
According to table 1 we can find that productive public investment is nearly 15.44% of GDP in
2012; The investment in living (social) field is only 3.74% of GDP. But in productive public
investment, the total fixed capital investment in scientific research, technical services and geological
exploration is 0.48% of GDP, far below the rest three productive industry public investment;
According to the perspective of China's long-term balanced economic growth, the long-term
investment that used technology research and development field should not be lower than the artificial
or daily spending, at least over 2% of the GDP. Therefore, China should boosting investment, the
financial support by global government purchase or sponsor private capital to purchase the most
advanced technology research and development equipment globally, and hire the most outstanding
talents with high salary to develop technical equipment that the national economy development. We
can also see in table 1 that the public capital investment in living field is far lower than the productive
field. For instance, the public capital investment in the living field is around 24.22% of the productive
filed in 2012. China must boosting the public capital investment proportion in living field, such as
education, health, culture, sports, social security and other spheres. we must increase the investment

130
in the living fields above, and the amount of public capital investment in the living field should be
generally consistent with the productive field.

Policy Suggestions of Public Capital Investment Improvement in Science and Technology

Research and Living Field
Building a Reasonable Mechanism of Science and Technology Research of Public Capital
Investment
Numerous classic researches and policy practices have proved that technological progress is the first
driving force to develop economic and improve social welfare. At the same time, education
investment and R&D investment are the physical bases of the science and technology progress,
because the education and R&D investment own positive externalizations which determine a shortage
of investment in these fields. Therefore, the government must increase investment in public capital in
the field of education and R&D to overcome the market failure. There is no doubt that there is a huge
return on investment in education and R&D field as expected, and it is also a country or region's
physical base of the science and technology progress for balanced economic growth.
Famous scholar Morales (2001) discussed the public capital investment mechanism in science and
technology research field. He pointed out that the steady state of average growth rate was equal to the
social stock of knowledge (or social and technical level) growth rate, there are internal relations:

Yt At& max
= = max = (n A ) (nB ) (1)
YT At

In formula (1), At& max is the parameter to measure the social stock of knowledge, , are parameters
between 0 ~ 1, n A , nB separately represent the investment intensity of society including the
government and enterprises applied research and basic research filed. Morales pointed out that a
long-term steady economic growth depends on the R&D density (also can be understood as R&D
input intensity and the capital accumulation of R&D), while other conditions are constant, the
equilibrium conditions of manufacturers investment in science and technology research and physical
can determine social stable state growth rate. When social knowledge stock change, it the
manufacturers innovation success probability and discount rate of innovation will change, and then
the proportion equilibrium in science and technology research investment will also change, and
finally affect the economic long-term steady growth. The distribution of the proportion of basic
research and applied research of government R&D investment have important influence on corporate
R&D investment decisions. For instance, government R&D investment only engaged in basic
research, which has no "crowding out" effect to the enterprise R&D investment. At the same time, the
government R&D investment leads to an increase in social stock of knowledge, then the enterprises
will increase R&D investment. But the applied research in the government R&D investment can
improve successful innovation rate of the whole society, speed up the process of creative destruction,
and also have "crowding out" effect to R&D investment. Chao-feng Yang (2008) pointed out that the
improving effects that government R&D investment plays in the economic growth were as follows:
(1) the government R&D investment should maintain a certain proportion in basic research and
applied research. If the proportion in application research is too large, there will be a negative effect
on economic growth, thus the main function of the government R&D can increase the social stock of
knowledge. (2) the pulling effect of economic growth by government-led enterprises R&D
investment is decreasing, thus the government should keep a moderate scale of government-led
enterprises funding on R&D to improve the efficiency of public capital investment.

131
Strengthening the Public Capital Investment in Science and Technology Research
The development in science and technology research field depends on the support of the government's
public policies and the guidance of public capital. For instance, Development Plan Outline of
National Medium and Long-term Science and Technology (2006-2020) which promulgated by the
state council in 2006. it clearly pointed out that China should build a diversified and mufti-channel
investment in science and technology system. The national financial input should mainly be used to
support the basic research, frontier technology research, social public welfare research, major
technology research and other public activities of science and technology. Strengthening construction
of basic sci-tech condition platforms, building a mechanism of basic sci-tech condition sharing
platform, and guiding enterprises and whole society to invest the science and technology areas. The
Party Central Committee and State Council issued the Opinions about Deepening the Reform of
Science and Technology System and Speeding Up the Construction of National Innovation System in
2012. It clearly points out that China will built a national innovation system with Chinese
characteristics in 2020, which own mufti-level and mufti-channel investment in science and
technology system and realize the goal that the research and development spending of whole society is
over 2.5% of GDP. The policies above have been made the direction and strength of government-led
public capital clearly. Cheng-Liang Yan (2009) pointed out that Chinese science and technology
research investment affect the economic growth by influencing the choice of labor, and leisure
consumption choice(including physical capital accumulation and R&D investment). With the scale of
government R&D investment is larger, the rate of economic growth is higher. There is a long-term
equilibrium relationship between R&D investment and economic growth.
Increasing Government-Led Public Capital investment in Education Filed
Progress of science and technology is the first power and the driving engine of the long-tern
economic growth. Education of human capital is the material technology base of this driving engine.
For instance, Schurz calculated the yields of education investment increment of the United States
from 1929 to 1957, and he found that the contribution of education investment is 33% to GDP in the
United States, Education can promote economic growth significantly by improving the labor
productivity. Baldacci etc. (2008) pointed out that the spending of education and health has positive
effects on human capital, which can causing a higher rate of economic growth. China's national
financial education funds on education is 2.223623 trillion yuan in 2012, which is 4.28% of GDP.
However, the fixed capital investment in education industry account for only 0.89% of GDP, which
far below the proportion of 1.23% in 2003. Education owns characteristics of typical basic, strategic
and significant externalization, thus the government should responsible for education investment. In
social public investment field, education must take a large part of investment composition. The
formation of education investment is the material technology base of internationally competitive
human capital and high qualified labor. Now, if there is no global leading education infrastructure,
and high-end technology equipment, it is impossible to have citizens that own global leading
comprehensive quality and human capital. In education investment field, there are many aspects that
need to be strengthened. For instance, we should keep the government investment on education
infrastructure and technical equipment at the top universities which is above the provincial level in
our country and the foreign well-known universities at the same level, as for the education
infrastructure and technical equipment of some top universities like 985 should reach the international
first-class level, and ensure colleges are equipped with world's latest education equipment and
education technology. They will become the producer and provider of world-class scientific and
technological innovation achievements. As for middle school and primary school, the government
should provide advanced education infrastructure by making full use of education investment. For
instance, advanced mufti-function teaching buildings, libraries, gyms, laboratories, informational
teaching equipment, advanced sharing teaching platform of national distance fine courses, and etc.
For low-income families, the government should provide free computers and free quality distance
network courses, By doing like this can ensure the children from urban and rural low-income families
132
to enjoy the equal basic education services. We should keep the scale of education investment from
the institutional aspects, and forming a good mechanism of education.
Increasing the Intensity of Public Capital Investment in Living Filed to Ensure Equalization
Level of National Basic Public Services
Increasing the intensity of public capital investment in living filed can keep rights of basic public
services, and efficient measures to enhance national welfare level. It is crucial factors to promote
China's long-term sustainable and balanced economic growth, and also core goal of economic growth
in socialist market economy system. But the public living field does not own the profitable
characteristics like economic public field. It is pure public products industry with few characteristics
of quasi public goods, for it cannot produce cash flow and the income cannot cover the expenditure
well. Thus, there is a shortage supply in public living field industry. For example, the needs of
high quality schools, hospitals, cultural spaces, sport facilities and graceful public places cannot
satisfy the society due to the limited resources of social and government. However, it cannot be an
excuse for government to ignore their responsibilities, Government should make great efforts to meet
the national demand in public living field under the conditions of limited resources. According the
report China: Promoting the Efficient, Tolerance, Sustainable Urbanization from World Bank,
Development Research Center of the State Council, and Financial Management Department predicts
the expending of indemnify apartments in the column is about1% ~ 2% of GDP on average per year in
the future 20 years. However, the investment of residential and other services is only 0.37% of GDP in
2012. As a result, there are margin spaces to promote the public investment in the filed of social
services industry. And we should realize that the equalization of basic public services by increasing
the public investment is the only way for China to ensure the whole nation share the development
achievement of the reformation. The content of the equalization of basic public services proceed from
the real national conditions mainly includes: (1) the basic livelihood services, like employment
services, social assistance, pension security; (2) public utility services, like public education, public
health, public culture, science and technology, population control and etc; (3) basic public welfare
undertakings, like public facilities, ecological protection, environmental protection, and etc; (4)
public security services, like social security, production safety, consumer safety, defense security and
etc. It is the responsibility of the government and national rights to guarantee equalization of basic
public services. The central government should strive to ensure the public investment in living field
almost the same between urban and rural areas, and different regions by transfer payments or other
ways, and ensure every citizen can share the achievements of China's economic growth.

Acknowledgement
This research was financially supported by Fei-hu Yangs National Social Science Foundation
(12AJL006) which named as a study on factors and policies of public investment in promoting
China's local-term and balanced economic growth.

References
[1] Mara Fuensanta Morales, Research Policy and Endogenous Growth, J UFAE and IAE Working
cca shut, 6(2004) 179-209.
[2] Chao-feng Yang, Xiao-feng Jia, The mechanism research about the influence of the public R&D
on economic growth. Chinese soft science, 8(2008) 37-46. (in Chinese)
[3] Cheng-Liang Yan, Government R&D investment and long-term economic growth, economic
science, 2(2009) 45-59. (in Chinese)

133
[4] Schultz, Theory of human capital investment, Beijing school of economic publishing house,
Beijing, 1990.
[5] Baldacci E. Clements, B., Gupta, S., Cui Q., Social Spending, the Human Capital and Growth in
Developing Countries, World Development, 4 (2008) 1317-1341.

134
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Empirical Analyzing for a Financial Centre on the

Economic Flows Network Space

Quan-yong BAI
Beijing Information Technology College, Beijing, China, 100018
Email: bqy1962@126.com

Keywords: Flows network space, Economic scale model, Economic driven force.

Abstract. This issue focused on a deep analysis of a financial centers industrial economics structure
and layout via researching methods of the flows network spatial economy, especially the method of
economic scale model, based on geographic environment of economics network that the financial
center is located. It also proposed various structural adjusted solutions in details, applied with the
general constraint relation measure, economy driven force, economic scale degree and so on.

Introduction
"Financial Street" is an agglomerating economics center which contains a brand concept of financial
industry and financial-related city service function, which is based both on geography location and
crucial position in regional economic flows network core nodes. According to statistics, till end of last
year, there were 173,000 employees in Financial Street, accounted for 70.1% of whole financial
professionals in the city. Its district-level revenues came up to US$870 million stranded on an annual
average growth of 29.5%.
Insisting on supporting Financial Street as a local economic development core area, the regional
government offers optimal combination of policies guiding and organizational supporting, to form a
virtuous cycle supporting chain that the financial sustains science & technology, culture, trade and
business service industries, and then these supported industries promote the financial back. This
situation will help to guarantee the synergetic and comprehensive development of integrating the
whole regional economics and chain cluster, furthermore, to establish a regional economic flows
network space related and supported by multiple agglomerating economics centers.

Flows Network Space Economy

Some theoretical foundation of the flows network spatial economy formed had been laid by these
economic theories in the recent years. Now due to social economic development, the whole
hierarchical network society had formed, so every economic activity had flowed in various networks.
Though that spatial structure was described by its four elements, it was not so simple spatial formation
that each of these elements corresponded to certain economic connotation and function. Given
various economic flows constituted by some important economic impact factors, who participated in
economic activities, it was no fully scientific expression about the general relation between them.
Only were there some partitions on the natural property and scope of function, and attribution of
factors in Weber's industrial location theory, these caused their partition processing to no integrated
and unified, simplified and standardized system. Otherwise Weber put forward material, products,
population and information flows, and together integrated the residential community of village and
town, transportation site, business service and financial center, and others into an economic system,
there were no whole systematic concept of economics space on flows network, and theoretical
systematic research method. Though some economic geography scholars put forward 7 kinds of
single and combination mode of economic development, they specifically studied that the
coordinative theory about from the population to resources, to environment, to development, and the
135
measure-index-system of regional sustainable economic development, and spatial economics
integrated system, and various relational flows, etc.. The spatial economy presented the networks
system that there were interdepending nodes, domains coordinated development, "tube" running
management of ancillary facility, and various spatial economic entities with the interlaced and
intensive, however it did not perfectly define a spatial theory about the general synergetic structure
and researching methods of similar general nonlinear economic force control system on the
interacting effect of various economic flows. Including the concept of network system, regional core
and periphery, and various effect of social economic elements with the historical accumulative and
genetic, it had no data show of various dynamic interweaved economic force flows from the source to
converge on networks, also it did not construct a comprehensive, integrated, unified and systematic
measure-index-system with main economic impacted factors, and no research methods of economic
scale model with the regional & non-regional economic force on flows network.
Before now, a large proportion of studying on the regional and spatial economy, it was only to
compare to their static formation and inter-contact effect between the different points in a certain time
sequence. According to a spatial density for economic elements per unit geographical area, a single
absolute quantity, it was proceeding with these static comparative analysis on the different time points
before and after, but there was no studying analysis of the dynamic identified, differential ratio,
comparative, and dynamic programming. Based on the density differential per spatial unit area or
elastic coefficient changes in certain time sequence, etc., studying economic developing tendency
with some suitable methods, did it nothing. The flows network spatial economy, with modern
mathematical thought, firstly abstracted complex interweaved surface belts on which economic
factors flowed into a flows network in certain objective geographical space. And it was essential that
it abstracted the spatial location into the node, the flowing path into the link, what was a flows
network space of various economic elements that it was interlaced and superimposed. Secondly
proposed the definition of complete boundary stone of regional and non-regional economic factors,
with its theory and method, it revealed complex and uneven internal rules between its nodes about the
enclave economy and global economic integration phenomenon, and promoting the development of
spatial economics research into a new era.
Flows Network Space [4]
is an universal set of objective social economics. ~ is a spatial set in which each economic
element has some activities, and so do A ~ of which economic activities unit. On the definition of
~ ~ ~
{ }
general relation , it builds the general relation knowledge base , with scientific
division. On the base it constructs 33
9 , namely, an index system of nine main economic factors which
impacts regional economic development. On the definition of general nonlinear economic force
control system, their moving trajectories (interweaving smooth curve (t ) ) on which economic
activities bear show a formation of network in the . Abstracting the curve 9 (t ) of 9 main economic
~ ~
factors, it also constitutes a space 33
9 of the ones. According to economy E E proposed by Nobel
~
Economic Prize winner Gerard Debreu, so does the economy E933 E of the ones. Therefore there is
~
the flows network economic space 33 33
9 including the E9 , both they are in the general relation.
~
Here, an area X 0 , its flows network space is for 9 0 33
X
9 . On the basis of spatial economy,
the flows network spatial economy replaced the effect of realistic geographical location to the
aggregation economics node and flowing link in economic flows network abstracted, and on similar
cost calculating principle of iceberg melting, transferred the effect to coefficient of retardation in its
flowing link. It emphasized on researching analysis of their dynamic interaction and inter-influence
between various economic flows and their changing development. Based on the general relation,
synergetic structure, knowledge base on the general relation, regional and non-regional economic

136
factors, index system of nine main economic factors, economic force and economic growth
momentum, etc.[1, 2, 3], with the general nonlinear economic force control system, economics scale
model, breaking-point theory, Steiner minimum weighting network, forward economic forecast on
dynamic fuzzy logic system, optimal combination forecast on the general synergetic structure with
ANP method, etc. [3], it researched and analyzed the internal rules of its economic phenomenon, and
interaction and interrelation between its economic flows, meanwhile studying the dynamic locational
formation and spatial layout of its abstraction about the production activities of its economic factors,
and finally solving the complex economic problems in its space, such as the planning and layout of
Chinese urban cluster, network layout of regional economic industrial node adding, disequilibrium
support of the global economic integration, unbalanced exchange in international economics and
trade network, heterogeneous flowing change in the international financial system, mapping problem
between the objective spatial economic resources and financial monetary system.

Flows Network Layout of Kernel Economic Power Nodes in the Area

Throughout analyzing with economic scale model, nowadays regional space of the Financial Street
headquarters that it is an economic flows network is mainly composed of financial, trade,
sci-technology, communication, public service sectors and so on. Its structure embodies an economic
flows network in general constraint relation, which it expresses comprehensive economic relation, but
yet none is a network cluster of comprehensive industrial agglomeration centers. In figure 3, node 23,
24, and 27 for financial nodes supporting with IT technology service, meanwhile among them, 23 for
communication nodes 29, 30 and 31 providing with the same one, 36 for financial node 35 performing
to credit insurance service, 42 for these insurance nodes supporting with sale & marketing service, 38
for the other providing with reinsurance service, 9 for 30 with terminal service provided by one way,
all they are in the contribution by one way. All nodes of unclosed circles in figure 3 referred to as the
public service, they take double way in the contribution to the main business industry nodes. Node 29,
30 and 31 with node 22 respectively is the vertical correlation. Node 33, 34 and 39 with node 7, so
does it. Node pair 2 and 3, 1and 47, 8 and 37, respectively is also. Provided special services by node
23, node 4, 5, 6, 7, 10, 29, 30, and 31 are in interdependent relationship. Relative to node 22, node 29,
30, and 31 are in the dependence for each other. Provided by node 24 to special service, each other of
node 5, 6, 7, and 10 is in the dependent. Node 42 to node 36, 38, and 39, are in the contribution, and
node 38 to 36 and 39 are also. Node pair 1 and 8, 22 and 32 respectively is the same. Similar state's
public service nodes of unclosed circles are in the dependence each other in figure 3, but so do
different ones of them and so on. Deep analyzing 42 typical economic nodes within the center, it is
concluded that some of them are in both contribution and dependent relation, or correlation, or
interdependent. They are composed of complex economic flows network space in the general
constraint relation.

Figure 1. Headquarters' economic flows associated network layout diagram in Financial Street.
Note 1: 1.Sinofert Holdings, 2.PetroChina International, 3.CPTDC, 4.China Life, 5.BOC, 6.ICBC,
7.CCB, 8.CNAMPGC Holding, 9.Surfing Telecommunication Terminal, 10.Beijing Branch of ICBC,
137
11.Parkson, 12.Zhongrui Yuehua Certified Public Accountants, 13.Grandway Law Offices,
14.DeHeng Law Offices, 15.TianYuan Law Firm, 16.China United Assets Appraisal, 17.JiaYuan
Law Firm, 18.Jurisino Law Group, 19.Zhongxin Notary Public Office, 20.Beijing GuanTao Law Firm,
21.China United Accounting Firm, 22.China ComService, 23.AutoTech, 24.ZiJin Technology,
25.China Finance Online, 26.Equity Exchange Online, 27.Vision Sky, 28.Globe FinanceCom,
29.China Unicom, 30.China Telecom, 31.China Mobile, 32.China Cable Network, 33.China Jianyin
Investment, 34.CCB Financial Leasing, 35.The Export-Import BOC, 36.China Export & Credit
Insurance, 37.CNADC, 38.China Life Reinsurance, 39.BOC Insurance, 40.COSCO, 41.SINOCHEM,
42.DaTong Insurance.
Note 2: Among them the solid circle edge of economic node represents the headquarters' enterprise
in the Financial Street rarely provides public service. Single dashed circle is refer to provide a certain
public service, otherwise double dashed circle represents for provide professional public service in
this area. Thick and single solid line connecting to two economic nodes shows they are vertical
economic relationship in mutual stake investment, and single solid arrow's connection is expressed to
vertical relationship of up-down-stream in production or service. Here multiple economic nodes
within vertical correlative relationship may be in the contribution. Single dashed line connecting two
economic nodes represents the dependence in the same business.

Empirical and Data Analyzing on Economic Scale Model

According to researching result of well-known scholars on the stability of cooperative nodes in
complex combination network, it is more than five nodes of different comprehensive economic
industries that it could construct an approximate closed circulating flows network space with the
general constraint relation, in the regional headquarters' economic core area, which it is able to defend
against external various risk and crisis. Applied with researching methods of economic scale model [2,
3], empirical analysis combined with specific data in figure 3, it is concluded that although this area is
composed to complex network (blue line) in the general constraint relation, which financial and
mobile headquarters, and supporting on each other between industrial chains, it is a basis to promote
the regional development. However, not yet it has constructed a richer stable headquarters' cluster in
this network, namely agglomeration economics centers' cluster.
As a developing country mainly producing manufactured goods for the global, it is a priority that its
core power is economic elements into its external, so collaboratively computing regional economic
power that it is producing power combined with its external importing consumption, more
appropriate to fully embody the dynamic performance in this regional economic development. In
figure 3, it is shown that complex economic flows network space, according to the financial,
communications, sci-technology, trade & business, public service, and so on, which these nodes are
divided into different economic pools. The economic power data was shown in other papers,
analyzing and calculating on the regional statistical data.
Empirical analyzing result, in the Financial Street that headquarters' economic area, it has shown
that there is a lack this type of node to node supporting from education industry, especially
international advanced high-end education park related to each of its industry, otherwise various
seminars in international culture and education are in the same, especially on financial and economic
investment, education management. On the health care, absence of personalized high-end service,
especially a full consultancy of medical service on Internet & IT, and on the IT electronic commerce
in headquarters' economic industry also, especially each of product selling or service chains for all
headquarters, in brief a little of headquarters in sci-technology innovation, especially IT derived
service supporting for them, so all they could promote to do main headquarters' economics and
service development. Finally not yet what industrial category that has been fully integrated there,
especially a lack of cultural education, health care, sci-technology, and IT headquarters economics.
There still is little of strong professional public service park composed of vertical downstream

138
production and service chains associated to headquarters' economics, which guided by its government,
especially none of agglomeration center, or large chain-cluster on the professional service.
In figure 1, node 23, 24, and 27 for financial nodes supporting with IT technology service,
meanwhile among them, 23 for communication nodes 29, 30 and 31 providing with the same one, 36
for financial node 35 performing to credit insurance service, 42 for these insurance nodes supporting
with sale & marketing service, 38 for the other providing with reinsurance service, 9 for 30 with
terminal service provided by one way, all they are in the contribution by one way. All nodes of
unclosed circles in figure 3 referred to as the public service, they take double way in the contribution
to the main business industry nodes. Node 29, 30 and 31 with node 22 respectively is the vertical
correlation. Node 33, 34 and 39 with node 7, so does it. Node pair 2 and 3, 1and 47, 8 and 37,
respectively is also. Provided special services by node 23, node 4, 5, 6, 7, 10, 29, 30, and 31 are in
interdependent relationship. Relative to node 22, node 29, 30, and 31 are in the dependence for each
other. Provided by node 24 to special service, each other of node 5, 6, 7, and 10 is in the dependent.
Node 42 to node 36, 38, and 39, are in the contribution, and node 38 to 36 and 39 are also. Node pair
1 and 8, 22 and 32 respectively is the same. Similar state's public service nodes of unclosed circles are
in the dependence each other in figure 3, but so do different ones of them and so on. Deep analyzing
42 typical economic nodes within the center, it is concluded that some of them are in both
contribution and dependent relation, or correlation, or interdependent. They are composed of complex
economic flows network space in the general constraint relation [1, 2, 3].

Acknowledgement
This research was financially supported by the Xicheng District Peoples Government of Beijing
Municipality.

References
[1]. Quanyong Bai, Urban Planning Development in Complex Combination Networks. Applied
Mechanics and Materials, 295-298(2013) 2528-2534.
[2]. Quanyong Bai, et al, Complex networks economy systems engineering in general synergetic
structure. Systems Engineering Procedia. 4 (2012) 252-258.
[3]. Quanyong Bai. Forward Forecasting and Assessment on Regional Development of Nuclear
Power Investment in General Synergetic Structure Theory. Chinese Academic Journals (CD)
Electronic Journals Publishing House, 2013.
[4]. Quanyong Bai. Thoughts of Flows Network Spatial Economy. Public Financial Research.
11(2014) 11-13.

139
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Analysis on Influence Factors of Online Supply Chain

Finance Credit
Chao LI
School of Beihai Campus Management Committee, Guilin University of Electronic and Technology,
Guilin 541004, China

Keywords: Online supply chain, Credit risk, Influencing factors, Integrated ISM-DEMATEL method.

Abstract. In order to effectively control the line of supply chain finance credit risk, this paper use
integrated DEMATELISM method to establish the factors of credit risk recognition model on the
basis of analysis between the factors mutual influence relationship and strength. In the end, this
paper obtained the hierarchy relation line of credit risk of supply chain finance the influencing
factors between the comprehensive relationship between and among various factors, so as to offer a
complete system frame of reference for reducing the credit risk , but also for the commercial banks
establish effective credit evaluation mechanism to provide the fundamental basis.

Introduction
With the China's economic transformation and the rapid development of electronic information, the
Shenzhen Development Bank as a pioneer in China's supply chain finance online revolution. From
then on, more and more scholars have carried out a series of research on the credit risk of the online
supply chain [1-3]. But up to now, few scholars research the line of supply chain finance credit risk
from the whole, especially there is no scholars studied line of supply chain finance risk influence
factors of mutual influence relations and strength, analyze the influence factors of online supply
chain finance credit risk system of hierarchical structure and the status and role of elements in the
systemic risk, and that the key factor of on line identification of supply chain finance credit risk and
develop credit risk control strategies and implementation is very important. Therefore, this study
firstly sort out the line of supply chain finance credit risk influence factors, and then using
integrated decision experiments (DEMATEL) and interpretation structure model (ISM) method to
analyze and recognize the factors of credit risk between hierarchy and the key factors, to provide
theoretical support for the effective control of the line of credit risk of the supply chain.

The Analysis on Influence Factors of Online Supply Chain Finance Credit

From the perspective of supply chain finance, Hu Haiqing, Zhang Lang and Zhang Daohong (2012)
use SVM model and BP neural network to establish an evaluation system of credit risk of small and
medium-sized enterprises from the four aspects of the industry, the financing of enterprises, the core
business credit and supply chain relationship [4]; Long Yunfei (2013) put forward the core
enterprise to choose a decisive impact on the supply chain, and establish a strict access exit
mechanism, strengthen the supply chain mechanism construction by the industry environment,
comprehensive the strength of small and medium-sized enterprises and the supply chain operation
condition analysis, such as the main body of the credit investigation system, credit supervision
mechanism [5]. Commercial banks should strengthen the audit, strictly control; risk factors for face.
Wang Xin (2014) firstly generalize the traditional supply chain finance credit risk research of
influencing factors [2]. Secondly, through the expert investigation method to determine the outlet to
supply chain finance special credit risk factors by secondary screening, and ultimately confirm the
line of supply chain finance credit risk influence factors. In the end ,this paper build online supply
chain finance credit risk influence factor system based on the collection, collation and other
scholars of this research and consulting in the field of senior practitioners statistics, which from the
small and medium-sized enterprise qualification, the core enterprise qualification, project financing

140
qualification (material and accounts receivable), logistics and supervision enterprise qualification,
online supply chain operation condition and macro environment extracted six categories a total of
25 factors. Online supply chain finance credit risk influence factor system is shown in table 1.
Table 1. Influence Factors of online supply chain finance credit risk.

S1 Medium and small enterprises ability of pay debts

S2 Medium and small enterprises profitability

Qualification of small S3 Development potential of small and medium sized enterprises

and medium enterprises
S4 Small business and personal credit management

S5 Small and medium enterprise management ability

S6 Core enterprise profitability

Core enterprise
S7 Core enterprise industry status
qualification
S8 Core enterprise credit status

Logistics supervision S9 Logistics enterprise quality

Enterprise qualification S10 Logistics information transmission effect

S11 Previous default rate

S12 Intimacy of cooperation

credit risk S13 Degree of information sharing
Online supply chain
operation status
S14 Informatization level
S15 Coordination level
S16 Operational performance

S17 Industry growth

Macro environment
S18 Macroeconomic policy

S19 Legal ownership of pledge

S20 Quality of pledge

S21 Pledge of pledge

Financing project quality
(quality and accounts S22 Pledge price stability
receivable)
S23 Aging of accounts receivable account

S24 Debtor rate of bad debts

S25 Return record

The factors shown in table 1 are directly or indirectly influenced the online supply chain finance
credit risk, but the important degree and hierarchy between factors is not clear. Therefore, the
following will use integrated DEMATEL - ISM method to solve the problem.

Credit Risk Influencing Factor Identification Model Based on ISM-DEMATEL Integration

Method
DEMATEL and ISM are the important methods to analyze and make decision by using the theory of
graph theory and matrix theory on the basis of analyzing the direct relation between complex
141
system factors and two factors. The advantages of DEMATEL are embodied in determining the key
factors of the system and the reasons for the division of factors and the results, the advantages of
ISM are embodied in the establishment of the hierarchy model of the system factors. Based on their
respective advantages and common, two methods of integration to the ISM as the central model,
DEMATEL as the auxiliary model, so as to simplify ism modelling computation, the key factors in
the system.
Determine the Impact Factors of Credit Risk
Online supply chain financial credit risk factors as shown in Fig. 1, all the factors that affect the
collection is S , in which the factors are recorded as S i (i = 1,2,3L 25) .
Establish a Direct Impact Matrix
Using Delphi method to determine the influencing factors of interaction and impact strength, the
impact strength measurement Likert five point scoring method, according to various factors
between mutual influence were given the corresponding numerical. The 4 indicates the relationship
between the two factors is relatively strong; the 3 said the relationship between the two factors is
strong; the 2 indicates the relationship between the two factors in general; the 1 indicates the
relationship between the two factors is weak; the 0 indicates no direct relationship between the two
factors. According to the determination of influence degree of factors directly affect the
matrix X = (xij )2525 can be established, which x ij indicates the factors s i of factors s j directly
affects the degree, general xij x ji , because factors s i of factors s j and factor of influence
degree are not the same, when the i = j , x ij = 0 . The final direct impact matrix is shown in the form
of 1.

(1)

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To Determine the Direct Impact Matrix of Standardization
The calculation formula of the direct influence matrix is

X
G= 25
(2)
max x
1 i 25 j
ij

( )
X is the direct impact matrix, through the standardized treatment G = g ij 2525
,and 0 g ij 1

Determine the Comprehensive Impact Matrix

On the basis of the standardized influence matrix G , the comprehensive influence
matrix T = (t ij )2525 is calculated. Comprehensive influence matrix can be expressed online supply
chain finance credit risk factors between direct and indirect impacts on the comprehensive
accumulation, to determine the impact of each factors relative to the system in the highest levels of
factors finally.

I G n 1
T = G + G2 + G3 +L+ Gn = G (3)
I G

Because 0 g ij 1 , therefore, when n , G n 1 0

1
T = G (I G ) (4)

I is the unit matrix.

Determine the Value of Comprehensive Evaluation
The value of comprehensive evaluation to determine that the calculation of credit risk factors
influence degree f i , influence degree ei , centrality degree m i and causes degree ni .
Willing comprehensive influence matrix T of rows and columns, respectively, the total can get
credit risk factors influence degree f i and influence degree ei , the factors of influence degree f i
and influence degree ei can be obtained by adding the corresponding factors of the center of m i ,
the various factors of the influence degree f i and influence degree ei subtraction to the
corresponding factors of the causes of ni . Degree of centrality in credit risk demonstrates the
importance of factors, and the greater the value, the greater the importance of the factor. The degree
of cause and effect of the factor to other factors. If the value is positive, it indicates that the factor
has an effect on other factors, accordingly the factor is the reason, and if the value is negative, it
indicates that the factor is affected by other factors, accordingly the factor is the result of the factor.
According to the type 2, type 3 and type 4 eventually can be obtained f i , ei , m i , and, as shown in
table 2.

143
 Table 2. Comprehensive evaluation results of credit risk influencing factors.
factor Influence degree fi Influenced degree ei Center degree mi Reason degree ni
S1 0.00 0.91 0.91 -0.91
S2 0.41 0.45 0.86 -0.04
S3 0.18 0.66 0.84 -0.48
S4 1.39 0.32 1.71 1.07
S5 0.36 0.68 1.03 -0.32
S6 0.28 0.43 0.71 -0.15
S7 0.59 0.25 0.84 0.34
S8 0.00 0.32 0.32 -0.32
S9 0.86 0.00 0.86 0.86
S10 0.36 0.28 0.64 0.09
S11 0.91 0.84 1.74 0.07
S12 0.52 0.72 1.24 -0.20
S13 0.33 0.85 1.19 -0.52
S14 0.57 0.13 0.70 0.44
S15 0.23 0.70 0.93 -0.47
S16 0.35 0.78 1.13 -0.43
S17 1.19 0.13 1.32 1.06
S18 0.88 0.00 0.88 0.88
S19 0.10 0.17 0.27 -0.08
S20 0.15 0.39 0.54 -0.24
S21 0.13 0.46 0.59 -0.33
S22 0.15 0.32 0.47 -0.17
S23 0.13 0.16 0.29 -0.03
S24 0.13 0.22 0.35 -0.09
S25 0.13 0.17 0.30 -0.04

Determine the Overall Impact Matrix

The comprehensive influence matrix T is not affected by its own, so it needs to calculate the
overall influence relation, that is H = (h ij )2525 , the whole influence matrix:

H = I +T (5)

Determine the Reachable Matrix

Through formula 2, type 3, type 4 and type 5, the reachable matrix is finally obtained K = (k ij )2525 ,

and among them, if h ij > 0 , k ij = 1 , if h ij < 0 k ij = 0 . The final reachable matrix is shown in the
form of 6.

144
 (6)

Determine the Interpretation Structure Model

According to the reachability matrix in the reachable set R(S i ) and antecedent set A(S i ) , using 7
factors can be calculated for each layer. Some of which R (S i ) = {S i S , k ij 0}(i = 0,1,2 L 25) ,
A(S i ) = {S i S , k ji 0}(i = 0,1,2 L 25)

R(S i ) = R(S i ) I A(S i ) (7)

After calculation that credit risk factors affecting a total of 8 layers, the first level factors set
L1 = {S1 , S 8 } , rowing reachability matrix elements S1 and S 8 the corresponding rows and columns,
empathy can be calculated the remaining seven layer factors,
respectively
L2 = {S 21 , S 23 S 24 , S 25 } , L3 = {S19 , S 20 , S 22 } , L4 = {S 2 , S 3 , S 5 } ,
L5 = {S13 , S16 , S15 , S12 , S 7 , S 6 , S 4 , S11 }, L6 = {S10 , S 9 , S17 } , L7 = {S14 } , L8 = {S18 }, eventually according
to the hierarchy up to matrix was constructed hierarchical structure model of the line of supply
chain finance credit risk influence factor, as shown in Figure 1.

145
 Figure 1. The explanation structure model of the influencing factors of the credit risk on the online supply chain.

According to the internal control system, which is shown in Figure 3, the structure diagram of the
internal control system, the influence factors of the credit risk of the online supply chain are divided
into eight levels. Lines of supply chain credit risk degree centrality and cause degree respectively,
reflecting the importance and nature, the hierarchical structure model reflect the relationship
between the line supply chain credit risk factors, therefore, further research on line of supply chain
finance credit risk rules.
According to the center, we can see causes and hierarchical structure chart of ladder, the small
and medium-sized enterprise debt paying ability and core enterprise credit status as elements in the
first level, and a direct impact on the size of the entire supply chain finance credit risk. The
innovation ability, development ability, debt paying ability and the profit ability of the financing
enterprise directly influence the comprehensive strength of the enterprise, and the key to reduce the
credit risk of the small and medium-sized enterprises is to improve the ability of the financing
enterprise. The core enterprise credit condition determines the efficiency and effectiveness of the
whole supply chain finance operation.
According to the center and hierarchical hierarchy diagram shows, the elements at the second
level in a collateral liquidity, accounts receivable aging account, debtor's bad debt rate, return
records. When banks suffer from credit risk, the higher the ability of the pledge, it can make up for
the loss. Should be accounts receivable aging account and return records reflects the enterprise sales
situation and capability, and debtor default rate affect the creditworthiness of SMEs financing,
debtor default rate is high, is not conducive to the prevention of financial risk of supply chain
system.
According to the reason and the hierarchical structure of the graph, the third levels of factors
including the legal authority of the pledge, the quality of the pledge, the price stability of the pledge.
The ownership of the legal authority of the pledge of a pledge from the legal sense of the upper
bound of the pledge, the division of power and responsibility to fulfill the situation. The quality of
the pledge affects the liquidity of the pledge, and the volatility of the price of the collateral provided
by the online supply chain finance platform together with other indicators reflects the status of the
pledge.
According to the hierarchical structure diagram, the fourth levels of factors are small and medium
146
enterprises profitability, SME development capacity, small and medium enterprises operating
capacity. Small and medium-sized enterprises should have their own core products, at the same time
to strengthen the core capabilities of enterprises, enhance customer coverage, access to market
competitiveness. The establishment of procurement and sales procedures, norms to strengthen
management, improve the commercial credit.[6] Enhance their own hematopoietic function of small
and medium enterprises to improve financing capacity, in order to continue to enhance the
comprehensive strength.
Supply chain information sharing, supply chain operational performance, supply chain
coordination level, supply chain cooperation intimate degree, core position of enterprise in the
industry, the profitability of the core enterprise, small and medium-sized enterprises and managers
credit, supply chain default rate for the fifth level elements. Line of supply chain finance involves
multiple links such as logistics, production, demand, need a multi-channel information transmission
and sharing, supply chain information sharing degree to be able to achieve a full range of
information transmission, and the establishment of financing, settlement and information service
comprehensive line of supply chain finance service payment solutions. Supply chain coordination
can optimize the credit structure and promote the supply chain trade, so that e-commerce and online
supply chain financial services to achieve collaborative management. Supply chain collaboration
intimacy can enhance the frequency of cooperation, improve financing efficiency.
Sixth levels of factors including the effect of logistics enterprise information delivery, logistics
enterprise quality, industry growth. Bridge logistics enterprises as a link to small and medium-sized
enterprises and financial institutions, logistics enterprise quality and the information transfer effect
related to supply chain each link in the operation of the smooth functioning of, and specification of
information systems and resource integration system can for small and medium-sized enterprises
effectively solve the integrated logistics ask questions, pay attention to the matter of warehousing
and supervision, optimize the value evaluation, real estate auction services, and enhance the supply
chain cooperation of all the enterprises value.[7] Industry growth ability to determine the long-term
and effective development of online supply chain finance.
According to the center, causes and hierarchical structure chart of ladder can see, the
informatization level of the supply chain as elements in the seventh level, the continuous
development of information technology and e-commerce, promote the continuous development and
innovation of supply chain financing platform in line. The construction of the online supply chain
platform should take the demand as the main body, the science and technology as the carrier, the
network as the tool, the development of more operational functions, so that the financial resources
have been effectively developed. Promote credit system, core business management system,
logistics information system, financial management system, warehouse management system for
effective docking.
The eighth level is the macro economic policy. The situation of capital constraints to limit the
size of the expansion of SMEs, while the national macro policy directly affects the capital chain of
enterprises. Government to play a function of policy guidelines and system to create a good
environment for small and medium enterprises online supply chain financing, on the basis of the
market mechanism and perfecting the credit rights, real right guaranteed in real estate and other
laws and regulations to follow. Banks should be advocated to strengthen the entry mechanism and
post loan regulatory mechanisms to improve the enthusiasm of the market participants to join the
online supply chain.

Conclusions
This study belongs to the theoretical analysis, to from six dimensions of the small and
medium-sized enterprise qualification, the core enterprise qualification, logistics supervision
enterprise qualification, online supply chain operation condition, bad macro environment, project
financing qualification, which contains 25 elements and factors affecting the line of supply chain
finance credit risk analysis. This study wanst to promote the standardized operation of the capital
market and provide the theoretical basis for the risk management of commercial banks. Establish
147
the explanation structure model of the financial credit risk of the online supply chain, so as to
realize the win-win situation of small and medium-sized enterprises, core enterprises, logistics
companies and the state.

References
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supply chain finance evolution and risk management [J]. Business Economics and management.
2014, 01:13-22.
[2]. Xin Wang. Study on credit risk evaluation of small and medium enterprises based on online
supply chain finance [D]. Xiamen University, 2014.
[3]. Kuan Li. Study on the comprehensive evaluation of online supply chain financial credit risk [D].
Wuhan University of Technology, 2014.
[4]. Hai-qing Hu, Lang Zhang, Dao-hong Zhang. Research on the credit risk assessment of small
and medium enterprises in the supply chain finance perspective -- Based on the comparative study
of SVM and BP neural network [J]. management review, 2012, 11:70-80.
[5]. Yun-fei Long. The entropy of the small and medium-sized enterprise supply chain risk
assessment statistics and decision [J]. credit financing based on 2013, 13:177-179.
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148
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Price of Stock Index Futures with ARIMA Model

Shan-shan CONG, Jia-peng LIU*, Jie LIU and Xiao-li ZHAO
School of Economics and Management, ChinaJiliang University, HangZhou, China
*Corresponding author

Keywords: Stock index futures, ARIMA model, Price forecast, Simulation trading.

Abstract. On April16, 2010 Chinese first stock index futures listed in China Financial Futures
Exchange Traded. It means that, Chinese financial markets ushered in the era of short .Stock index
futures have become the focus of the vast majority investors. This paper focus on the price
fluctuation of stock index futures since it appears on the market. Through the collection of the CSI
300 index futures closing prices, with data processing and analysis to establishment of ARIMA
model. According to the model, the price of stock index futures is forecasted, and then simulating
trading based on the predicted results, Simulation results show the accuracy of ARIMA model
prediction. The results provide a reference for investors to provide a reference for investment
activities.

Introduction
In recent years, the stock index futures have already developed into the important financial
derivatives of the global capital markets which provide an indispensable and hedging instrument for
investors. China has launched the Shanghai and Shenzhen 300 stock index futures contracts on
April 16, 2010, which indicated the financial futures market of China entered into a new stage and
was an historic milestone on the path to a market-driven economy.
Since CSI 300 Futures listing, the market development is very rapid, from the initial 1000 points
up to now more than 3000 points, the futures market showing a thriving, and prosperous
development of the situation. Because CSI 300 stock index futures and stock markets are closely
linked, therefore the development of the futures market means that the stock market is also
developed rapidly, but as we all known lots of investors are lack of confidence in the Chinese stock
market. On the one hand stock index futures can do more or short; in the delivery of cash to settle
accounts; so investors can avoid the volatility of the market funds, to a certain extent, CSI Futures
play an important role in stabilizing the market. On the other hand the futures market also provides
a place where transfers stock market prices risk to the futures market, risk from hedgers shifted to
speculators. Because of the existence of the speculator who wants to pursuit profit Stock index
futures market can smoothly realize the transfer of risk.
There are many researches on stock index futures at present. Box-Jenkins (1976) ARMA model
is one of the most commonly used modeling and forecasting techniques. It is generally referred to
as autoregressive moving average (ARMA) model. This methodology assumes that changes of time
series data are related to its own past value. It creates autocorrelation regression model. KUMAR
Manoj and ANAND Madhu using the ARIMA model to forecast the sugarcane production in India.
The prediction results show the accuracy of using the ARIMA model to do forecast 2014.Zheng M
and Miao J build ARMA and ARMA-GARCH models to forecast the returns of shanghai stock
exchange composite index in 2012.Dongmei Xue established ARIAM (3, 1, 2) model to analysis on
the total social investment in fixed assets 2010. It should be noted that, when we employing ARMA
model, the basic assumption is that the future mode of a time series repeats its past pattern. It was
also studied that the hypothesis can only be met for short-term, while forecasting over longer the
accuracy tends to deteriorate. So the Autoregressive Conditional Heteroskedasticity Model (ARCH)
by Engle 1982, and the more generalized GARCH model by Bollerslev 1986s, was proposed to
explain the conditional variance. In China many studies have been conducted to explore and model
149
the price behaviors of Futures markets, Yu Wei used volatility forecasting models to studied CSI
300 index futures. The results show that GARCH and its extended model are the weakest in the
volatility of the Shanghai and Shenzhen 300 stock index futures. Shan-yin Bai was committed to
forecast and analysis of Shanghai Stock Index Based on ARIMA model, and results show using the
ARIMA model was effective. As for this paper we establish the ARIMA model of the CSI 300
index futures prices to predict.

Data and Methodology

The financial data used in this research is the daily closing price of the Shanghai and Shenzhen 300
index futures which sources Great Wisdom 365 Clients. The entire data set covers the period from
16thApril 2010 to 31th March 2016.There are 1447 days of observations. The data set is divided
into two periods: the first data period is from 16st April 2010 to 31st Dec 2015 (1388 days of
observations) while the second period is from 1st Jun 2016 to 31st March 2016 (59 days of
observations). The first period, assigned to in-sample estimation, is used to determine the
specifications of the models and to estimate their parameters. The second period is reserved for
out-of-sample evaluation and simulated transaction. The Shanghai and Shenzhen 300 stock index
futures series recorded as P.
Types of ARMA Models
Autoregressive model methodology

rt 0 1rt 1 2 rt 2 +3rt -3 +p rt-p +a t , t =1,2,3 T (1)

Its called P order autoregressive model, i is regression coefficient, and P is the autoregressive
order, at is white noise with mean 0 and variance 2 . rt is time series, in this paper it stands for
the Shanghai and Shenzhen 300 index futures day closing prices.
Moving average model methodology

rt =c0 +1at -1 +2 at -2 +3at -3 +q at -q +a t , t =1,2,3 T (2)

Its called q order moving average model, q are the model coefficients, and c0 , q are constants
Autoregressive moving-average model methodology

p q
rt =0 + i rt-i +a t +i a t-i , t =1,2,3 T (3)
i=1 i=1

According to expression of ARMA (p, q) model, we know that if p=0, ARMA model is
simplified as the q order moving average model MA (q); in contrast, if q=0, ARMA model is
simplified as the P order autoregressive model AR (p).
Model Identification
The model identification is mainly determined what kind of models may be used and the ARIMA
model in this study follows the Box-Jenkins 1976 three-stage model identification strategy.
According to the characteristic of partial autocorrelation function and autocorrelation function can
make specific judgment.

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 Table1. Criteria for the identification of models
Model ACF PACF
AR(p) Tailing p order truncation
MA(q) q order truncation Tailing
ARMA(p, q) Tailing Tailing

From this table we can estimate the model and determine the order by observing the image of
autocorrelation and partial autocorrelation coefficient.As we know from different sample the ACF
and PACF are different, and the estimated value of the coefficient can only be in agreement with the
theoretical trend.In the process of the actual identification model, the specific model form should be
based on the information given by the autocorrelation and partial autocorrelation coefficient, after
repeated experiments and tests, the final choice of the indicators are in line with the requirements of
the model form.
There are two commonly used information criterion Akaike information criterion (AIC), Schwarz
Bayesian information criterion (BIC), the expressionsare as follow:

AIC 2Ln(L)+2 k (4)

BIC 2Ln(L)+k Ln(n) (5)

In formula (4) and(5) where, Lis the maximum likelihoodfunction,Nis the sample size, and k is
the number of parameters to be estimated in the model. With the Information criteria, we prefer to
choose the smallest information criteria model.
In addition, other commonly used statistic index to measure the goodness of fit of stationary
model is R2. The value of R2 is between (0, 1), the value larger means the model fit better. As far as
possible to select the model with high goodness of fit, and information criterion is smallest. The
specific forms of the model are determined by these indexes, and then the model parameters are
estimated, getting the residual sequence. Testing the residual sequence of the model is white noise
sequence or not to judge the models effectiveness. Ljung-Box statistic as follows:

m
2s
Qm =T(T+2) (m) (6)
s=1 T s

The hypothesis is that the residuals series t is a white noise process. Statistic Q asymptotically
obeys the chi square distribution. At a given significance level, if Qm (m) , we accept the
hypothesis, and model checking is achieved. On the contrary, it is necessary to modify the model.
Financial time series forecasting is based on the premises that the financial market is valid and
prices fluctuation history will repeat. So in this paper we assumed that the financial market is
effective, publicly available information about the stock has been properly reacted in the price. We
can analysis the historical data to find out the law, We can use this rule that base on the analysis the
historical data to predict the financial market price. The main idea of making prediction is to
minimize the variance of the forecast error, because the prediction error is a random variable,
therefore the expectation of the prediction error is minimized:

min E e2T (L) =min yT+L -yT (L)
2
(7)

On the above formula where T (L) is in the period of T to the next L step size of the predictive
value, we can prove that yT (L) is the conditional expectation of the yT+L .
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Empirical Findings
First of all, we observe the Shanghai and Shenzhen 300 index futures closing price as a whole trend,
and the observation time isfrom 16st April 2010 to 31st Dec 2015.

Figure1 CSI 300 Futures daily time series

From the observation of the line chart, we can see the overall trend of the CSI 300 Futures. The
straight line is the mean of CSI 300Futures, we can see that the fluctuation range is different, which
shows that the variance of the sequence changes with time t.Therefore, the preliminary
determination of the CSI 300 Futures sequence is not smooth.
Stationary Test
First of all, we made a test on the stability of CSI 300 Futures daily closing data, as we all known
the ADF test is applied frequently; the inspection results are as follow:
Table 2 SCI 300 Futures daily time series of ADF test results
t-Statistic probability
Augmented Dickey-Fuller test statistic -1.590740 0.4871
1% level -3.434879
Test critical values 5% level -2.863427
10% level -2.567824

From the table 2 we can see that the T test statistic value is -1.590740, the critical values were
greater than the significance level of 1%, 5% and 10%.We have accepted the null hypothesis, that
the original sequence is the unit root process.
Because of the original time series are non-stationary, therefore, we should carry out the unit root
test to the first order difference sequence of the CSI 300 Futures. The test results are as follow:
Table3CSI 300 Futures daily time series of first-order differential ADF test results
t-Statistic probability
Augmented Dickey-Fuller test statistic -17.64352 0.0000
1% level -3.434879
Test critical values 5% level -2.863427
10% level -2.567824

As it can be seen from the above, the value of the T test statistic is -17.64352,the confidence level
were less than the critical value of 1%, 5%, and 10%. Therefore, we have rejected the original
hypothesis, the first order difference series of the CSI 300 Futures does not have the unit root and
the sequence is stable.

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Model Set
Since the original sequence of first-order differential is steady,so the d=1 in the model. The ARIMA
(p.1.q) model can be established for first orderdifferential sequence.The p and q value through the
autocorrelation and partial autocorrelation to preliminary determination. By observing the
autocorrelation and partial autocorrelation, the p model of the ARMA model was 4, and q was
3.After adjustment of different independent variable lag order p and random disturbance term lag
order q, the parameters of the model are both significant. In addition to the 4 order of the
independent variables, the coefficients of the model are significant at the 21% significant level. For
this result may be explained by the ARIMA models order, the larger lag order the greater impact
on the current increasingly. On the other word,with the increasing of the number of lags, the
influence degree is more and smaller for the model. Throughthe model selection criteria determined
the model for ARIMA (4, 1, 3) to predict the CSI 300 stock index futures pricetrend.
ARIMA (4, 1, 3) models parameters were estimated and the residual sequence should be tested
to determine whether model is correct or not.The residual error of the estimated ARIAM (4, 1,3)
model is tested by the autocorrelation test.
After testing the residual series autocorrelation function of this model is in the 95% confidence
interval, from the 1 order to 8 order self-correlation function of the corresponding probability are
greater than the significance level 0.05. Therefore, wecantrefuse the original hypothesis indicates
that the residual sequence is a white noise process, so it is suitable to determine the ARIMA (1, 4, 3)
model to fit the CSI 300 stock index futures series.
Forecast Analysis
On the basis of ARIMA (4, 1, 3) model to predict the CSI 300 futures index prices. In this paper, we
applied out of sample prediction and the period was from 1st Jun 2016 to 31st March
2016 ,reserving for out-of-sample evaluation and simulated transaction. We applied the ARIMA
model to obtain the predicted value; according to the predicated value we calculated the absolute
and relative error. Absolute error represents the absolute deviation between the predicted and the
actual, and the relative error indicates the degree of deviation from the true value of the predicted
value.
The following table is some statistical indicators that predicted by the ARIMA model. In this
form hit rate refers to proportion of the forecast trend are same with the actual trend.And mean error
rateindicates that the relative proportions of the average deviation of the predicted value and the
actual value; and the is representative ofcorrelation coefficient between predictive value and true
value.
Table4 Correlation statistics index between real and predictive value
Relevant index Hit rate Mean error rate

Numerical value 54.24% 1.5% 0.907

As it can be seen from the above table 4, the mean error rate is 1.5%, it indicates that predicted
results are close to the actual value, and the error rate is within the acceptable range. Inaddition, the
predictive model hit rate is 54.24%, it refers to that in the 100 forecast of 54 times forecast trend are
same with the actual trend. As we all known, as long as the prediction hit rate is more than 50%,
and it will be accepted. And then, the correlation coefficient between the predicted value and the
true value reached 0.907, which shows that the predicted value is highly correlated with the actual
value,indicating that the forecasted value is very close to the true value.At the same time theTheil
inequality coefficient is 0.0096, which means thatthe ARIMA (4, 1,3) modelfitting effect is
remarkable.
The next picture is CSI 300 index futures actual closing price series trend and the predicted
tendency which forecasted by the ARIMA model.

153
 Figure2 CSI 300 Futures real and predicted daily time series tendency
In the picture rp is real price and the fp is the forecast price. As it can be seen from the above
figure3, the tendencies of the predictive and true value are basically same. Therefore we can predict
the future trend to simulated trading of CSI 300 stock index futures.
Simulated Transaction
We can simulate CSI 300 Futures transaction according to the predicted value which forecasted
by the ARIMA model. We formulate the trading strategy as: when the predicted stock index futures
prices fell we do short; on the contrary, if the stock index futures prices rise to do more. In order to
simplify the transaction we do the following assumptions:
Investors are speculative traders,conducting fictitious transactions;
Not consider charges and associated transaction costs
Investors to buy or sell only one futures contract in each transaction
The investor holding period is one day, after thestock market closing thatinvestor didnt have
unsettled contracts.
And after the simulation transactions we found that tendency revenue prediction correct acquired
much more than prediction errors the loss. In addition, according to our forecast tendency of stock
index futures to conducted thefictitious transactions. We make the relative index of the revenue or
loss of total transaction as Rt , .And the definition as follows:

N
Rt = (m%) (8)
i =1

In the above formula m is the profit or loss of each transaction which based on the prediction data
to do short and more transactions. And N is the prediction interval length, in this article N is
Fifty-nine.
After simulated trading we got the average relative yield of simulated trading is 53.33%. It means
that the ARIMA model to predict the CSI 300 index futures to simulate the transaction is successful.
Therefore, investors can base on the results of this study and combined with the real situation in the
market to conduct transactionsof CSI 300 index futures.

154
Conclusions
According to the empirical analysis of the article, we found that using ARIMA model to predict the
price fluctuation of CSI 300 index futures is feasible.And the simulation results are very close to the
market real data, the results of the forecast include most of the information in the market.To a
certain extent, it represents the overall trend of stock index futures and the forecasting results have
some reference value for investors.
In the prediction of the actual use of ARIMA model, using for short term predicate the accuracy
will be higher but the forecasting accuracy will be reduced with the extension of predicted
time.From the above analysis, we can know that the estimated coefficient is not significant with the
increase of the lag order; the main reason is that with the extension of the forecast time, the more
uncertain factors that include futures market volatility, stock market fluctuations, interest rate
fluctuations,the country's macroeconomic policies and foreign economic policy will affect the price
volatility of stock index futures.
By simulating of the prediction results show that the model is very successful in forecasting,
therefore investors can refer to the prediction model established in this paper to build their own
portfolios. But we have to remind investor that in this article the prediction is established on the
market is effective and the financial market history will repeat itself. But we cannot remove the
history will not repeat itself, When the market is affected by national policies, impacted of domestic
and foreign economic situation and other external shocks, the market will fluctuateviolently . And it
is conceivable that this prediction will not be effective.
In this paper, there are some shortcomings; we do not take the transaction costs and
commissioninto consideration in the simulation trading, if the transaction costs be considered more
accurate results will be obtained.

Acknowledgement
In this paper, the research was sponsored by the National Natural Science Foundation of China
(71473235), ZhejiangProvincial Natural Science Foundation of China (LY16G030023) and the soft
science key project of Zhejiang Province (2014C25032), Zhejiang Provincial Key Research Base of
Management Scienceand Engineering, and Zhejiang Industrial Development Policy Key Research
Centre of Philosophy and Social Science of ZhejiangProvince.

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of Chemical Technology, 2010.
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United Kingdom Infl[C]// Econometrica. 1982:987-1007.
[6] Bollerslev T. Generalised Autoregressive Conditional Heteroskedasticity[J]. Econometrica,
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[8] YingshanBai. Based on the ARIMA model of the Shanghai and Shenzhen 300 index forecast
analysis [D]. South China University of Technology, 2010.
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[10] Tsay, R.S, Analysis of Financial Time series, (ThirdEdition). John Wiley and Sons, New York,
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2015.4.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Performance-Based-Ratemaking and Its application in Chinas Power

Transmission-Distribution Price Regulation
Qing HUANG*
State Grid Energy Research Institute, Beijing, China
*Corresponding author

Keywords: Performance-based-ratemaking, Price cap regulation, Revenue cap regulation, Power

transmission-distribution price regulation.

Abstract. In current power transmission-distribution price reform, China has established a cost plus
revenue regulatory method to power transmission-distribution price, which is featured of incentive
effects to some extent. By summarizing and analyzing the traditional regulation and
performance-based-ratemaking regulation as well as their respective applications, this paper analyzes
the characteristics and limits of price cap and revenue cap regulation models, and proposes, as
specific to the actual conditions in China, PBR targets and price cap regulation or rate-of-return
regulation and yardstick competition regulation combined model while introducing performance
benchmarking to give incentive initiatives to efficiency varied enterprises to improve their efficiency.

Introduction of Traditional Regulation and PBR

The role of regulation is to encourage adequate investment to satisfy the demand of consumers, while
compensating investors with reasonable rate on return. Two basic regulation models are:
rate-of-return (ROR) regulation and PBR regulation. ROR is also known as cost-of-service
(COS). This regulation model requires the regulation authority to apply active supervision on
electric power enterprises. PBR includes the stipulation of power transmission-distribution price,
including price cap, revenue cap, yardstick competition and other regulation and pricing models. PBR
requires the regulation authority to apply less interference. Under ROR regulation, the regulation
authority needs to determine the suitable expense, the value of investment cost and the allowable
ROR of investment cost, so, comparatively speaking, PBR more likely spend less regulation expense.
In order to bypass the inadequate efficiency of ROR regulation, more and more countries are
switching to adopt PBR model.
PBR addresses to give financial incentive initiatives to those enterprises subject to regulation in
reducing price or cost, or give them financial incentive initiatives based on the improvement of
non-price based performance. By reducing the times of variation to ROR or upon increased
regulation, PRB weakens the interrelationship between enterprise regulation price and enterprise
cost. During the cycle of regulation, the regulation authority will set up a formula for enterprise ROR
and price, the regulation authority thereafter will re-assess the enterprise cost and investment to
determine a new ROR and price that are to be applied to the next regulation cycle. Typical electric
power PBR model is Revenue cap and price cap based regulation.

Price Cap Regulation Model and Application

Price cap is in essence an agreement between the government or the regulation authority and those
enterprises subject to regulation, and a kind of effective regulation solution to be applied in
circumstances where enterprises have better understanding and knowledge to their own advantages in
technology and cost than the regulation authoritythe regulation authority sets up a price cap
(average price or weighted price) for all products or for a blanket of products, under which enterprises
have discretionary power to finalize their own price. The maximum price finalized in the first year

157
will be subject to adjustment in coming years based on predefined economic index and factor
collection. The general form of price cap is:

Pj,t=[Pj,t-1(1+RPI-X)]Z

Pj,t = the maximum price charged to Class j consumers in Year t; RPI = retail price index, i.e., rate
of inflation; X = production efficiency compensation factor, i.e., the percentage of enterprise
production efficiency increase during a certain period of time defined by the regulation authority; Z =
adjustment to incidentals. Price cap regulation is a blanket price regulation, where the difficulty is
the determination of the efficiency coefficient value X. Looking at the practice of UK in regulation,
Value X depends on the technical and economic nature of the industry and the cost variation arising
from progress of technology, and has significant difference among different industries even among
different regions of a same industry. Value X of power grid operating enterprise ranges 0-3%. Price
cap regulation now has been widely applied to US telecommunication PBR regulation and UK power
distribution regulation.

Revenue Cap Regulation Model and Application

Revenue cap regulation is purposed to apply effective control over power transmission cost, while
enabling enterprises the ability to gain reasonable return on investment; now, Australia, Norway and
Philippines and some other countries are using this regulation model.
Revenue cap regulation is actually the maximum allowable revenue of the monopoly businesses of
natural monopoly enterprises determined by the regulation authority, and generally contains the
investment plans of the monopoly businesses of natural monopoly enterprises, which is thereafter
adjusted pursuant to (RPI-X), and the value of X herein has the same meaning with the value of X in
price cap. General rate-of-return regulation model is:

TRt={[TRt-1+(CGA.C)].(1+RPI-X)}Z

TRt = allowable enterprise revenue in Year t; CGA = user growth adjustment factor (USD/user);
C= annual user quantity variation; RPI = retail price index, i.e., rate of inflation; X = production
efficiency compensation factor, i.e., the percentage of enterprise production efficiency increase
during a certain period of time defined by the regulation authority; Z = adjustment to incidentals. The
adjustment to revenue each year is purposed to simulate how enterprise cost changes along with
system the change of system characteristics, such as the number of users and the price of the product
invested. The rate of inflation may be evaluated by using CPI and RPI and other price indices. The
production efficiency compensation factor X ensures that users are benefited from the increase of
enterprise production efficiency. Incidental event Z include taxation increase, change to
environmental protection law, natural disasters and restructuring cost, etc.
Though revenue cap regulation model is simple, the final price is not controlled yet, as such, a
company has no restriction in pricing, which is not so wise to the regulation authority. Many US
electric power companies adopting revenue cap regulation model in the past now are switched to
price cap regulation model.

Discussion Power Transmission-distribution Price Regulation Models in China

Objectives of Power Transmission-distribution Price Regulation

Specific to the actual conditions in China, in setting up the objectives of the power
transmission-distribution price regulation, the first thing is to make adequate consideration on the
current status of power transmission-distribution price, as well as the demands of the regulation
authority and those subject to such regulation; secondly, effective incentive initiatives shall be made
to those enterprises subject to regulation for improving their efficiency, so that the benefits of electric

158
power consumers are protected while the survival and development of enterprises are preserved; this
effort is to stimulate enterprise to make active investment to power grid construction, and, to ensure
electric power quality requirement.
Chinas Power Transmission-distribution Price Regulation Models
Along with the deepening of electric power market-oriented reform and taking-apart of each phase,
different regulation methods and measures shall be applied to each phase according to its different
features. In electric power generation and electricity selling phases, loose the regulation and
encourage competition; in electric power transmission and distribution phase, strict regulation still
shall be applied for the current period, but the regulation method and means shall be innovated, as
such, PBR model now has been widely used in the electric power industries in many countries, due to,
as the main characteristics of it, the weakening of the interrelationship between enterprise cost and its
price, and the strong compatibility to introduced competition.
Currently and in the process of this round of power transmission-distribution price reform, China
has established a cost plus revenue regulation model to power transmission-distribution price, which
is featured of incentive function, to some extent. As specific to Chinas electric power transmission
and distribution regulation, PBR model may realize the maximized utilization of existing assets and
produce incentive initiatives for improving operation efficiency and other functions. Among these
functions, price cap regulation, revenue cap regulation and other models may enable those enterprises
subject to regulation to be benefited from reasonable cost compensation and gaining normal profit,
while improving users satisfaction; and it is a truly win-win model.
In order to achieve a sound incentive effect and avoid the impact of information asymmetry on
regulation, price cap regulation or ROR regulation and yardstick competition regulation model is
general used, based on which, by introducing performance benchmarking to give incentive initiatives
for encouraging efficiency varied enterprise to improve their efficiency, the overall electric power
grid efficiency can be improved; also, the practice of the regulation models combined with several
regulation modes by the electric power companies of US different states can be referenced in our
practice. Of course, price cap model still has disadvantages, such as, inability to reflect demand for
electric power and insignificant stimulation to investment, etc., and all of these limits shall be fully
considered and optimized in Chinas practice of power transmission-distribution price regulation
models.

References
[1] Lin, K.C., Purra, M.M., 2010. Transforming China's Industrial Sectors: Institutional Change and
Regulation of the Power Sector in the Reform Era. Working Paper no. SPP10-12. Lee Kuan Yew
School of Public Policy, National University of Singapore.
[2] Pittman, R., Zhang, V.Y., 2010. Electricity restructuring in China: how competitive will
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159
[7] Sappington, D., Pfeifenberger, J., Hanser, P., & Basheda, G. (2001). Status and trends of
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160
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Dynamic Pricing of Airline Tickets with Strategic and Myopic Passengers

Mei-rong TAN1,*, Hao LI1,2
1
School of Economics and Management, Chongqing Jiaotong University,
Chongqing 400074, China
2
Western China Transportation-Economy-Society Development Studies Center,
Chongqing 400074, China
*Corresponding author

Keywords: Strategic behavior, Clearance pricing, Dynamic pricing.

Abstract. This paper studies the optimal clearance pricing of tickets in the presence of strategic and
myopic passengers. We establish a two-perod dynamic pricing model, and characterize equilibrium
prices and profits using equilibrium theory and backward induction method. We prove that a pure
strategy equilibrium fails to exist. Instead, airlines play a mixed strategy with respect to their pricing.
Finally, we use numerical examples to explore the effect of various parameters on the performance of
optimal strategy.

Introduction
In the airline revenue management, clearance pricing of tickets is a very important problem for selling
tickets. However, the strategic passenger behavior makes the tickets mark down in price and reduce
airlines income. In January 2015, the major airlines of China fight in off-season with ultra-low
discount ticket strategy to grab market share, which lead to civil aviation total profit loss of nearly 1.5
billion. Directly reducing price is not an effective method to solve the clearance problem, especially
under strategic passenger behavior. Traditional strategies enable more strategic passengers to wait for
to the sales end of the period, which decrease airlines profit. How to reasonably price tickets and take
competitors prices into account are significant for airlines when facing strategic and myopic
passengers.
There are two streams of research that are related to our paper: clearance pricing of the perishable
product and the strategic consumer behavior. In the clearance pricing of the perishable product
literature, Cachon and Kok solve for the optimal order quantity in the newsvendor model assuming
rational clearance pricing, they show that the more surplus products, the greater the clearance discount
[1]. Koenigsberg et al. study the conditions under which offering a last-minute deal is optimal with
the single-price policy, they find that for an intermediate capacity level, the larger the number of
segments (that differ in price sensitivity), the longer the duration of the period in which tickets are
offered for sale [2]. Dasci and Karakul study dynamic and fixed-ratio pricing policies in a duopoly by
building a two-period model, in which capacity constrained firms compete on selling perfectly
substitutable and perishable products. They find that the market is more efficient under fixed-ratio
pricing [3]. Smith develops optimal clearance prices and inventory management policies that take into
account the impact of reduced assortment and seasonal changes on sales rates. These documents make
clearance price through the demand and the number of remaining products, which without
considering strategic consumer behavior [4]. In fact, consumers exhibit strategic behavior, in that they
may strategically time their purchases in anticipation of future price changes. Consumer strategic
behavior makes great challenge to firms original pricing strategy. Besanko and Winston study find
that total revenue of firm will drop about 20% if seller ignore consumer strategic behavior [5].
In the aspect of perishable goods markets with consumers strategic, Aviv and Pazgal research
optimal pricing of seasonal products in the presence of strategic consumers, they propose inventory
contingent discounting strategies, and announced fixed-discount strategies [6]. Dan and William
161
study the effect of strategic consumer behavior on pricing and rationing decisions of a firm selling a
single product over two periods. They find that the policy of doing the better of not restricting
availability at the clearance price or not offering the product at the clearance price is typically near
optimal [7]. Yan and Ke present posterior price matching (PM) and delay posterior price matching
(DPM)for dynamic perishable product pricing to consider in strategic consumer behavior. They
analyze reduction season price, purchasing equilibrium and regular selling season price using
equilibrium theory and backward induction method [8]. However, competition is not considered in
these papers. To our knowledge, only Jerath et al. consider the strategic consumer behavior in a
competitive environment. The author find that last-minute selling strategy cannot maximize revenue
when demand is to deterministic [9]. Ji based on consumer utility function, established a two-stage
dynamic pricing model and discussed pricing strategies under customer behavior and market
competition. The author finds that the strategic customer behavior reduces both firms' revenue [10].
In Dasci and Karakul model, two different classes of customers come and go in two different
periods whereas in our model, customers are divided strategic and myopic passengers who exist in
two periods. We start with passenger strategic behavior, research airlines optimal clearance pricing
under competition and discuss the equilibrium price. For airlines which facing the intense market
competition to take clearance price and revenue management provide theoretical basis.

Model Descriptions
We consider two competing airlines, A and B , each hold a quantity k of tickets to be sold over two
periods, t = 1,2 .We assume that there is no vertical differentiation between tickets of the two airlines.
The tickets have no value after the flights take off. There are 2 passengers who arrived at beginning
of period. We divide passengers into two categories, strategic and myopic passengers. Each category
has the same number . This assumption is reasonable, because Ovchinnikov and Milner fund that
half of the passengers choose to wait to buy special fares before the flight take off [11]. Myopic
passengers will purchase at t = 1 as long as the tickets price does not exceed their valuations, or leave
the market forever. Strategic passengers may decide to postpone their purchases if they believe that a
later purchase at a lower price may bring a higher expected surplus than what they can gain by an
immediate purchase. To simplify the problem, we assume that all passengers have the same
valuation r for the tickets.
We use superscript i(i = A, B) denote the airline, subscript j( j = 1,2) denote the period.
The following notation is used throughout the paper:
pij : price
of airline i at t = j
i
k : remaining tickets of airline i at t = 2
2

D2i : demand of airline i at t = 2

ij : expected total profit of airline i at t = j
U j : passengers utility at t = j
: the degree of strategicity of a passenger, [0,1] [12,13].

Let us formally make some assumption for our model

The airlines and the passengers are homo economicus, that is to say, the airlines pursue the
maximum profits and the passengers search for utility maximization;
k < 2 .

The Model
In this section, we study the equilibrium strategies using standard backward induction. Let 2 denote
the number of passengers who remain in the market at t = 2 , their valuation is r . Then the number of
remaining tickets at t = 2 is k2A + k2B . Bikhchandani and Mamer present a model that is closest to ours

162
[14]. They present a single-period inventory liquidation competition between two asymmetric firms.
Their model is identical to the second stage subgame of our problem, and therefore their results are
utilized in this paper.Depending on the prices, sales realizations of the airlines at t = 2 (omitting the
symmetric cases) are summarized as shown in Table1 [3].
Table 1. Sales realizations of the airlines at second period.

Prices D2A D2B

p2A < p2B < r min {k 2A , 2 } min k2B , 2 k2A
{ +
}
A B B + +
p = p = r
2 2 min k2A ,1 2 2 + 1 2 2 k
{ 2 } min k2A ,1 2 2 + 1 2 2 k2B
{ }
A B A
p r < p
2 2 min {k , 2 }
2
A B 0
p , p > r
2 2
0 0
This game has the following four cases that arise from a comparison of the inventories and the
market size at t = 2 :
Case 1: k2A , k2B 2
Case 2: k2A + k2B > 2 , k2A k2B < 2
Case 3: k2A + k2B > 2 , k2A 2 < k2B
In Case 1, each airline has sufficient tickets to satisfy the demand by itself, and hence Bertrands
marginal cost pricing arises. So we just analyze Case 2, and the analysis will be identical for Case 3.
Bikhchandani and Mamer model doesnt consider the strategic consumer behavior. Based on their
model,we introduce the discount factor of value to our model. We obtain the optimal pricing and
expected profit of airline A at t = 2 in Case 1 as follows:

kA k2B
p2A = A 2 B 2 ln A
r (1)
k2 + k2 2 2 k2
kA
2A = 2 B 2 k 2A r
k2

The optimal pricing and expected profit of airline B is:

kA kA k2B
p2B = 2 2B 2 A 2 B 2 ln r (2)
k2 k2 + k2 2 2 k2A
2B = ( 2 k2A ) r

We next analyze the price game between two airlines at t = 1 . There are four scenarios as follows.
If p1A = r ' , p1B = r ' ( r ' > r ) , then k2A = k2B = k . Two airlines will not sell any tickets at t = 1 , it lead to Case 1,
so the total expected profit is:

A = B = 0 (3)

If p1A r < p1B , only airline A sell tickets at t = 1 , the myopic passengers will purchase immediately as
long as p1A r . However, strategic passengers rationally anticipate purchase opportunities at t = 2 and
will buy at t = 1 only if the price is sufficiently. We have the following lemma.
Lemma 1 If p1A r < p1B , then U 2 > U1 , all strategic passengers will wait until t = 2 .
Proof:
When p1A r < p1B , the airline A sells tickets but the airline B doesnt sell at t = 1 . If the price p1A < r of
airline A is more attractive for strategic passengers to buy at t = 1 , the remaining tickets of market
at t = 1 is k2B = k , it contradicts to the condition k2A + k2B > 2 , k2A k2B < 2 . Suppose that the
163
airline A sells tickets, the remaining tickets at t = 2 are k2A = k . And the remaining tickets of the
airline B are k2B = k , then the price of airline B must below A , the strategic passengers will buy from B .
As discussed above, the optimal pricing of airline A at t = 1 is r , and makes a profit of r . Therefore, we
obtain U1 = 0 .
Let Eq. 1 - Eq. 2

kA k2B kA kA k2B
p2A p2B = A 2 B 2 ln A
r 2 2B 2 A 2 B 2 ln r
k2 + k2 2 2 k2 k2 k2 + k2 2 2 k2A
kA k2B k2A
= A 2 B 2 ln A
1 B r > 0
k2 + k2 2 2 k2 k2

So U 2 = r p2B = r 2 k2B 2 A 2 Bk2 k2B

A A
ln r
k2 k2 + k2 2 2 k2A
Where k = k , k = k , we have
A
2
B
2

+ k k 2 + k k
U 2 = r 1 2 ln 2 ln > 0
2 k 2 2 + k k 2k 2 2 + k

U 2 > U1 ,
all strategic passengers will wait until t = 2 , this implies 2 = .
This completes the proof.
From lemma 1, the expected profit for airline A and B are:

2 k
A = r + ( k ) r (4)
k
B = ( 2 k ) r (5)

p1A = p1B r , the myopic passengers will purchase immediately. If the price p1A < r of airline A is more
attractive for strategic passengers to buy at t = 1 , it obtains expected profit 1A = 1B = p1A . Now either
airline has an incentive to deviate p1A , and then Bertand outcome arises. So the optimal pricing of
airline A at t = 1 is r , all strategic passengers will wait buy until t = 2 . Then the passengers utility is:

k 2 2 k 2 2
U 2 = r p2A = r ln r = r 1 ln >0
k k 2 k k 2

Since U 2 > U 1 , the expected profit for airline A and B are:

+
A = B = r 2 + ( 3 2 k ) r (6)

If p1B r < p1A , the analysis is identical to the p1A r < p1B , and therefore, it is omitted. The expected
profit for airline A and B are:

A = ( 2 k ) r (7)
2 k
B = r + ( k ) r (8)
k

Based on the four situations, we have the following theorem.

Theorem1. There is no pure-strategy equilibrium of the airlines; 2) There are only mixed strategy
equilibrium, both airlines quote r with probability and r ' with probability1 at t = 1 , where

164
 + ( k )( 2 k ) k
=
( 2 k ) ( k )( 2 k ) k ( 3 2 k )+ + 2

and receive an expected total profit of

i( ) = ( 2 k ) r (9)

Proof:
Suppose that both airlines quote p1 r , then airlines sell 2 tickets at t = 1 and end up with k 2
tickets at the beginning of t = 2 . Hence, both airlines make an expected profit of
+
i ( p1 , p1 ) = p1 2 + ( 3 2 k ) r

However, an airline may deviate and set the price at p1 for an expected profit of

2 k
i ( p1 , p1 ) = ( p1 ) + ( k ) r
k
2 k
as 0 , i ( p1 , p1 ) = p1 + k ( k ) r

or it may choose not to sell in the first period by quoting r ' for an expected profit of

i ( r ' , p1 ) = ( 2 k ) r

If k > 3 2 , then i ( p1 , p1 ) i ( p1 , p1 ) for p1 0 . Let us prove by contradiction

that i ( p1 , p1 ) max {i ( p1 , p1 ) , i ( r ' , p1 )} when k < 3 2 .
Observe that

2
p1 1 r
k
1 1 2 1
p1 1 r r
2 2 k 2
2 k p1 3
p1 + ( k ) r + k r
k 2 2
i ( p1 , p1 ) i ( p1 , p1 )

Similarly, observe that

2
p1 1 r
k
p1 3
+ k r ( 2 k ) r
2 2
i ( p1 , p1 ) i ( r ' , p1 )

As above discussed, the first stage game does not have a pure strategy equilibrium, and hence we
look for an equilibrium in mixed strategies.
Summing up Eq. 3 ~Eq. 8, we can reduce the first-stage game to a game in bimatrix form as shown
in Table2.

165
 Table 2. The first-stage game.

Airline B
r r'
+
r 3
+
2 k , ( 2 k ) r
+ k r ,
r 3
r + k r r + ( k ) r
Airline A 2 2 2 2 k

r' ( 2 k ) r , r + 2 k ( k ) r 0, 0
k

The equilibrium condition is simply that the airlines receive equal expected profit from playing
either strategy. Therefore, by playing r or r ' , an airline should make identical expected profit, i.e.,

r 3
+
2 k
+ k r + (1 ) r + ( k ) r = ( 2 k ) r
2 2 k

from which we obtain as

+ ( k )( 2 k ) k
=
( 2 k ) ( k )( 2 k ) k ( 3 2k )+ + 2

This completes the proof.

Numerical Experiments
We present a numerical experiment in this section to illustrate how the proposed approach works in a
constructed example. First we will illustrate the profit on the performance of the demand when
passengers have fully strategic behavior = 1 . Assuming each airline has 100 units of tickets, without
loss of generality, as demonstrated in Fig.1. We can see that the profit is increasing in . Obviously,
the greater the demand, the more benefits obtained by the airlines.
Profit

Figure 1. The airline profit as a function of the demand .

Next, we consider the profit on the performance of the strategicity parameter , as demonstrated
in Fig.2. Three values of are examined: 1 2 , 2 3 , 4 5 . We can see that the profit is increasing in .
The reason is intuitive, a large means the probability of strategic passengers waiting is large, there
will be much more tickets at t = 2 for those passengers in order to gain more profit through dynamic
pricing.

166
 =4 5

=2 3

Profit
=1 2

Figure 2. The airline profit as a function of the demand for different values of .

Conclusions
In this paper we research clearance pricing policy in a duopoly, in which airlines facing strategic and
myopic passengers. The problem is modeled as dynamic game with complete information and
subgame-perfect Nash equilibrium concept is used to characterize the solutions. To analyze this issue
we propose a two-period dynamic model in which two airlines compete for passengers by selling a
limited inventory of tickets. We prove that there does not have a pure strategy equilibrium of the
airlines, only exists mixed-strategy equilibrium under the condition of k < 2 . Finally, we use
numerical experiments to explore the effect of various parameters on the performance of optimal
strategy. The main conclusion is that the strategic passenger behavior can be relieved by dynamic
pricing.
Our research can provide theoretical basis for the optimal pricing decision to airlines inclearance
pricing when facing strategic and myopic passengers. There are a number of important research
avenues that can be pursued. One natural extension is to increase the number of periods, and hence the
number of opportunities airlines can change prices. Besides, passengers purchase process may be
endogenously derived as a function of stochastic passenger arrival process.

Acknowledgement
This work was supported by the National Natural Science Foundation of China [71402012], and the
Natural Science Foundation of Education in Chongqing[KJ130402].

References
[1] Cachon G P, Kok G. Manufacturing & Sevice Operations Management, 2007, 9(1):276-290.
[2] Koenigsberg O, Muller E, Vilcassim N J. Marketing & Economics, 2008, 6(3):279-297.
[3] Smith S A. Springer US, 2015, 223:387-408.
[4] Besanko D, Winston W L. Management Science, 1990, 36(5):555-567.
[5] Aviv Y, Pazgal A. Manufacturing & Service Operations Management, 2008, 10(3):339-359.
[6] Dan Z, William L. Production & Operations Management, 2008, 17(4):416-431.
[7] Yan B, Ke C X. International Journal of Production Research, 2015, 12(4):1-16.
[8] Jerath K, Netessine S, Veeraraghavan S K. Management Science, 2010, 56(3):430-448.
[9] Ji W W. Open Journal of Social Sciences, 2015, 37(2):48-52.
[10] Dasci A, Karakul M. European Journal of Operational Research, 2009, 197(3):945-968.
[11] Ovchinnikov B A, Milner J M. University of Toronto working paper. 2005.

167
[12] Levin Y, McGill J, Nediak M. Management Science, 2009, 55(1):32-46.
[13] Bi G, Li L, Feng Y , Liang L. Discrete Dynamics in Nature & Society, 2014, 3(10):1-9.
[14] Bikhchandani S, Mamer J W. European Journal of Operational Research, 1993,
69(3):177-186.

168
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Legal Problems and Solutions of Village Environment Protection

Infrastructure Investment and Financing in China

Yan ZHANG, Xin ZHANG

Huazhong Agricultural University, China

Keywords: Ecological civilization, Infrastructure, Investment and financing.

Abstract. Village environment protection, infrastructure construction should be strengthened in

village ecological civilization construction. Village environment protection infrastructure
construction is critical in investment and financing problem. Village environment protection
infrastructure has problems of insufficient aggregate investment, indefinite investment direction,
simplified investment model, imperfect legislation, etc. thereby hindering village environment
protection infrastructure construction seriously. Related legislation of village environment protection
infrastructure, rural environment fund system as well as fiscal and tax system are perfected.
Investment and financing mode is guided, which is dominated by the government and participated by
multiple subjects jointly. It is a necessary approach for investment and financing of village
environment protection infrastructure.

Introduction
Ecological civilization was discussed for the first time in the report of the 18th CPC National
Congress. 'Beautiful China' is regarded as a grand goal of ecological civilization construction in the
future for the first time. Ecological civilization construction is discussed in the height of overall
layout. However, there are still many problems in village ecological construction under 'five-in-one'
strategic background, wherein infrastructure construction is the key in rural ecological construction.
Fund deficiency is the actual problem in ecological construction. Financing is the key in ecological
construction.

Overall Situation of Village Environment Protection Infrastructure Investment and Financing

in China
Overall situation of village environment protection infrastructure investment and financing in China
can be analyzed from the following four aspects. Firstly, environmental protection investment scope
in China includes the following three aspects mainly according to current caliber of environmental
protection investment statistics in China from the perspective of infrastructure investment direction:
urban environmental infrastructure construction investment, industrial pollution source control
investment and construction project 'Three Simultaneities' investment. In recent years, urban
environmental infrastructure construction investment accounts for the largest proportion in general
investment of environmental pollution control in China, which is followed by construction project
'Three Simultaneities' investment, and industrial pollution source control investment accounts for the
smallest proportion. Secondly, current investment subjects of village environment protection
infrastructure include government subject, enterprise subject and other financial institutions mainly
from the perspective of investment subject. However, government subject is in the dominant position.
Secondly, aggregate financing of national environmental protection infrastructure is increased slowly
and gradually from the perspective of aggregate financing. However, aggregate financing is different
greatly between urban and village environment protection infrastructure. Aggregate financing of
village environment protection infrastructure is greatly lower than urban environment protection
infrastructure, and the growth speed is slow extremely. Finally, financing model is analyzed.

169
Financing of village environment protection infrastructure mostly belongs to single government
dominant mode in China. In recent years, some new financing models are emerged, such as PPP,
TOT, etc. PPP (Public Private Partnership) refers to a cooperation mode between public sector and
private enterprise. It is a project financing mode of public infrastructure. Private enterprise and
government are encouraged for cooperation and participation in public infrastructure construction
under the mode. Its Chinese meaning is shown as follows: public, private and partnership.
Architecture of PPP model is shown as follows: industrialization advantage of use of private
resources is utilized from the perspective of public utility demand. Government and private
enterprises cooperate for joint development and investment, construction. Cooperation mode of
public utilities is maintained and operated, namely the cooperation partnership between the
government and the private economy in the public field. TOT (Transfer - Operate - Transfer) is the
short form of TransferOperateTransfer. It refers that the government signs franchise agreement
with investors. Then, benefited public infrastructure projects are transferred to private investors for
operation, wherein the public infrastructure projects are put into production. Fund can be financed
from investors in one time by the benefits of the facilities within several years in the future. The fund
is used for constructing new infrastructure projects; investors can transfer the facilities to government
for management for free after expiration of franchise term.

Related Legislation Condition of Village Environment Protection Infrastructure Investment

and Financing in China
Related legislation of village environment protection infrastructure investment and financing is not
perfect in China. Legislation includes three aspects mainly. The first aspect is current direct
specification about environmental protection; the revised 'Law of Environmental Protection of the
People's Republic of China' was approved through voting in 2014 during the eighth meeting of the
12th session of the standing committee of the National People's Congress. The environmental
protection law is the most severe in the history, which was implemented since January 1, 2015. The
red line of ecological protection is included into law for the first time. Supervision and administration
responsibility of the government on environmental protection is further defined. Basic systems of
environment protection are perfects in the aspects of total pollution load control, environment and
health monitoring and impact assessment, joint prevention in different administrative zones, etc.
Enterprise responsibility in prevention and control of pollution is strengthened. Legal sanction of
illegal behaviors is enlarged. The second aspect is shown as follows: the State Council promulgated
'Environmental Protection Management Measures of Construction Project' jointly in 1986 in the
name of Environmental Protection Committee of the State Council and State Development Planning
Commission aiming at environment protection specification of project construction. 'Provisions on
Environmental Protection Design of Construction Projects' was formulated in 1987. 'Regulations on
Environmental Protection and Management of Construction Projects' were promulgated in 1998 in
the name of state council document. These documents are programmatic document of environmental
protection system of construction projects in China. In addition, the State Council formulated
'Regulations Concerning the Prevention and Cure of Pollution Damage of Marine Environment by
Seashore Construction Project' in 1990. Water Resources and Power Ministry formulated
'Environmental Protection Management Method of Thermal Power Construction Project (Trial)' in
1987. The Ministry of Chemical Industry formulated 'Several Provisions on Environmental
Protection and Management of Chemical Industry Construction Projects' in 1987 and formulated
'Appraisal Methods of Excellent Environment Impact Report of Chemical Industry Construction
Projects' in 1994. Ministry of Energy promulgated 'Regulations for Preparation of Environmental
Impact Assessment Outline of Thermal Power Construction Project (Trial)'and 'Notice of
Environmental Impact Assessment Charging Principles and Reference Limit of Thermal Power
Construction Project (Trial)' in 1990. Then, People's Construction Bank of China formulated 'Notice
about Examination and Approval Authority Problems of Construction Project Environment Impact

170
Report' and 'Environment Protection Management Methods of Construction Projects' in 1986. The
final aspect is international treaties which are participated and signed by China. More than two
hundred multilateral environmental agreements have been reached in the international community.
Dozens of the agreements contain terms of environmental protection. For example, it is required that
member countries should bear the obligations of providing environment protection for infrastructure
in International Convention for the Prevention of Pollution from Ships. Marine environment is free
from gasoline pollution by ships or shore equipment. In addition, ' Montreal Protocol on Substances
that Deplete the Ozone Layer' has the tenets that prevention measures are adopted for canceling total
global emission of ozone depleting substance consumption, thereby protecting ozone layer. It is
required in the agreement that all countries should control to use, collect and discharge more than 20
substances, which can damage ozone layer. These substances include freon, methyl chloride, etc.

Existing Legal Problems of Village Environment Protection Infrastructure Investment and

Financing in China
Current situation of environmental protection infrastructure investment and financing legislation in
China is combined for analysis from the legal perspective. There are following problems: (1)
'top-down' decision-making mechanism and legal norms hinder investment and financing. The
'top-down' decision-making mechanism is adopted for rural public product supply in China for long
term. Government bears important task of providing public products. It is responsible for dominating
the categories and quantity of rural public products. Consumption subjects (peasant households) of
rural public products have less and even no initiative in the aspect of demand expression. The supplier
(government) of rural public products is the subject of product demand decision-making. All
governments are composed of people according to the perspective of public choice theory, which are
consistent with the features of 'rational man', thereby pursuing the purpose of maximizing own
benefits. The government always makes some decisions inconsistent with farmers' interests for the
consideration of work achievement and own interests during supply of rural public products. The
'top-down' selection mechanism of rural public goods leads to excess supply of some public products.
However, the supply of some public products is insufficient seriously. (2) Unclear property rights
system affects investment and financing. In the construction of rural public products, borrowers do
not have enough confidence and assurance to repayment source in view of the public product
characteristics and the difference of derivative gain form and characteristics from general
merchandise. Borrowers are also lack of confidence in loan repayment. It is determined by nature on
public product property right. Therefore, it is critical for establishing the repayment confidence
between the borrower and the lender to make clear the property right of public products, guarantee
yield right, legitimate disposition right and legitimate protection right of public products. In China
rural area, public product construction project should be made clear, the property right of public
products construction project should be made clear aiming at financing of public products, thereby
making clear respective rights and responsibilities of constructers, beneficiary and management
personnel. These are system factors producing important influence on both financing supplier and
demander of rural public products in China. (3) Difficult financing is caused by imperfect guarantee
mortgage system. Local government promises to repay by future fiscal income in supply of rural
public products, loan from the bank institution with the reputation thereof is a repayment mode which
is adopted generally. Loans are repaid mainly through charging from project users as well as inner and
outer environment analysis of fiscal budget of local government in rural infrastructure projects. Since
infrastructure projects are generally characterized by high investment and longer recycling time, it is
far insufficient to repay the loan by charging; there is general phenomenon of government 'final
analysis' currently. Local government assumes the role of final repaying party. Government
repayment suffers from credit deficiency risk due to some artificial factors. Government repays
mainly through transferring land use right and tax. Government repayment is random due to
insufficient specific restraint mechanism. Fund coordination mainly depends on idea and

171
consciousness of government leaders. Bank is the lender of fund, when loans are released through
credit loan mode, local governments' repayment ability reputation, loan repayment concept and
consciousness are not investigated deeply, which just become formalistic. Therefore, credit
evaluation is not precise enough, and greater repayment risks are produced. (4) Investment and
financing risks are enlarged due to imperfect rural financial supervision system. Currently,
environmental responsibility and supervision are less regulated in China relevant financial legislation.
Main financial institutions include rural credit cooperatives, rural village banks and rural financial
mutual aid society, etc. in rural areas. The financial institutions have relatively weak ability to avoid
risk, therefore rural financial markets are supervised insufficiently inside and outside, and investment
and financing risks are increased.

Investment and Financing Solutions of Village Environment Protection Infrastructure in

China
In conclusion, village environment protection infrastructure has problems of insufficient aggregate
investment, indefinite investment direction, and simplified investment mode, etc., related legislation
is still not perfect at the same time. Foreign experience and specific conditions in China are combined.
We should enlarge investment on village environment protection infrastructure continuously.
Government leading role should be emphasized. Diversified financing mode should be advocated.
Meanwhile, perfection of relevant legislation should be accelerated. First of all, legal systems of the
village environment protection infrastructure investment and financing should be established and
improved. Environment clauses of investment and financing legal regulation are not sufficient,
environment clauses and beneficial experience of solving disputes should be learned from
development banks in the United States and Asia in order to solve the legal difficulty. Environment
clause for embodying spirits of environment and resource protection law should be added in China
domestic legal regulation about investment and financing and international bilateral investment
agreements. Dispute solution mechanism adapted to corresponding legal order should be established.
Environment responsibility system of investors and financers should be perfect. Environment
compensation liability of lender and shareholder as well as social responsibility of enterprises on
environment should be made clear. Secondly, related fiscal and tax legal systems of environmental
investment and financing should be perfected. Tax expenditure system, fiscal budget and transfer
payment, the government green procurement and many other fiscal and tax systems related to
environmental investment and financing are perfected and adjusted. Thirdly, legal system of rural
environment fund should be established and perfected. Local governmental environmental fund,
national environmental fund and securities investment fund legal systems are perfected, initial
funding source of local government environment fund should be changed. Fiscal funding should be
regarded as complement on the basis of pollutant discharge fee, and initial capital of fund should be
stabilized; Fund operation modes of 'grant subsidy' and 'soft loan' should be changed. Low-interest
loan mode should be adopted properly. The recovered loan principal and interest, profits and other
funds should be invested into local governmental environment fund for recycling. Finally, an
investment and financing mode should be advocated, which is dominated by government and
participated by multiple subjects jointly. China village environment protection public product market
supply mode enriches and develops government supply mode. The government should formulate
corresponding supporting policies to support village environment protection public product supply
industry.

References
[1] Liu Haitao. Rural public product supply and farmer income growth, Shandong Social Science,
2014 (8).

172
[2] Jia Kang, Sun Jie. Application of PPP mode in new rural infrastructure construction , Local
Finance Research, 2014 (10).
[3] Fei Zhenguo, Lu Dongning, Hou Junqi. Research on supporting small and medium-sized rural
infrastructure construction by rural policy finance , Economic Survey, 2014 (6).
[4] He Qiujie, Deng Kailong. Strengthening of government public investment for improvement of
rural infrastructure , Journal of Xihua University (Philosophy and Social Sciences Edition) 2014 (6).
[5] Lu Qiju, Cheng Liangtao, Zhou Wen. Thinking on supporting rural infrastructure construction
loan in Agricultural Development Bank , Modern Township, 2014 (7).
[6] Lin Yifu. Strengthening rural infrastructure construction to start rural market, Issues in
Agricultural Economy, 2015 (10).

173
 2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on Risk Assessment of International Factoring Financing

Business: Illustrated by the Example of Bank A Zhejiang Branch

Jun ZHUO, Feng-yuan ZHOU and Ya-ting ZHOU*

Zhejiang University, Hangzhou, Zhejiang Province, P.R.China
*Corresponding author

Keywords: International factoring financing, Risk assessment, Event identification.

Abstract. This thesis studies on the international factoring financing business of Bank A Zhejiang
Branch. It reviews the course of concentrated outbreak and responses of risks since 2012, and by
taking the examples of two typical risk events, reveals the decision making process of risk control
measures and the deficiencies existing in practice, which leads to the predicament of the business.
Then it brings up the question of how to do a good job in the risk assessment of international factoring
financing business. Based on the case content, this thesis, introduces the eight management elements
in the COSO enterprise risk management framework as theoretical basis, analyzing the item
identification and risk assessment on the international factoring business matters of Bank A. With the
above overall analysis, this thesis proposes to improve risk assessment efficiency by using COSO
enterprise management framework and asymmetric theory.

Introduction
As the highest degree of internationalization of the bank, Bank A has always been the first choice for
export business bank. In recent years its international factoring business has also suffered a huge
impact. In 2015 the end of June Bank A Zhejiang branch only exported non-performing rate of
commercial invoice discounting business amounted to 2.47%, far higher than other trade financing
product defective rate, which means that asset quality control situation is grim.

Case Analysis

COSO Enterprise Risk Management Framework

In September 2004, the United States COSO (National Committee of the false financial reporting
Committee of the promoter of the Commission) proposed the "enterprise risk management -
integrated framework", in which the enterprise risk management is positioned as, a process in which
the enterprise's board of directors, management and other staff participate, which can be used in
enterprise strategy and enterprise various departments and the business activities, to confirm
potential events that may affect the company and manage risk in the range of risk preference, thus to
provide reasonable assurance for the realization of the target enterprise. The integration framework
establish the analysis framework from the three dimensions including the target system, management
elements and the main elements, the contents of which are shown in figure 2.1:

174
 Figure 2.1 COSO enterprise risk management - Integrated Framework
The first dimension is the target system, including four objectives categories: (1) the strategic
objectives, namely high-level goals associated with mission; (2) operation objectives, namely,
efficient use of resources; (3) reporting objective, namely, to ensure the reliability of report; (4)
compliance objectives, namely compliance to relevant laws and regulations.
The second dimension is the management elements, including eight interrelated elements, which
originate from the mode of operation of the management authorities and integrate with the
management process, including: (1) internal environment; (2) goal setting; (3) event identification; (4)
risk assessment; (5) risk response; (6) control activities; (7): information and communication; (8)
monitoring.
The third dimension is the main unit, including enterprise overall level, department level, business
units and subsidiaries. Enterprise risk management applies to both the overall level of business
activity. It can also be used in each business department, business process and the branch level
business activities.
Combined with the case, chief executive department of international factoring financing business
risk management of Bank A Zhejiang branch is the international settlement department, which is a
Product Management Department to achieve business objectives, with reference to the COSO
enterprise risk management integrated framework, this paper mainly from of two elements of event
identification and risk rating assessment, carries out analysis on international factoring financing risk
assessment work of Bank A Zhejiang branch.
Event Identification
Accurate understanding of the international factoring financing risk factors of the Zhejiang branch is
the premise to do a good job in risk assessment of international factoring financing. For better
recognition of risk issues, this section makes statistics and analysis of all 80 bad customer
information in international factoring financing of Bank A Zhejiang branch since 2010, and using the
basic theory of asymmetric information to identify and to sum up the risk factors of these bad
customers.
Classified by the theory of asymmetric information and through the statistical analysis of bad
reasons, this article sorts out a total of seven kinds of the customers credit risk factors and six kinds of

175
business debt risk factors, respectively, replaced by A and B, and the various risk factors
corresponding to t content of risk are briefly described, as shown in table 2.1 and 2.2:
Table 2.1 risk factors of customer credit level
No. Risk factors
A1 External guarantee risk
Credit policy changes in
A2
financial institutions
Enterprise investment abroad
A3
risk
Private lending increased
A4
financial risk
Weakness of the enterprise
A5
management ability
A6 Operator quality
A7 Industry periodical risk
Table 2.2 risk factor of business debt risk level
No. Risk factors
Seller misappropriation due
to the buyer failing to pay
B1 the payment according to
the instructions of the return
path
Sellers misappropriation
due to the buyer's collection
B2
period is shorter than the
business term
The buyer rejected or
B3 refused due to contract
disputes
B4 Buyers disability to pay
The payment cannot be
remitted or delayed payment
B5 due to the buyers local
political risk or other force
majeure factors
Inconsistency between
B6 sellers documents and the
actual logistics information
Risk content Frequency
Refers to the influence of the compensation liability of the
guarantee due to the influence of the customer's guarantee 39
risk.
Refers to the impacts of pumping pressure loans or
adjusting the credit policy on the financial fluidity of
17
customers, which is because of the potential risks for
financial institutions when facing the customers.
Refers to the risk of loss of business affected by various
factors when enterprises invest in real estate, mineral and
9
other current overheated industries, or expand investment
in the main industry, etc.
Refers to enterprises for foreign investment needs and
other factors involved in private lending activities,
4
resulting in high financial costs and capital turnover
difficulties.
Refers to the loss due to the enterprise's main business
23
management.
Refers to enterprises involved in tax evasion and other
illegal activities by the relevant departments to investigate,
10
resulting in the production and operation of the
interruption and into trouble.
Refers to the industry where the enterprise is located falls
into the doldrums due to periodical fluctuations and leads 11
to business losses.
Risk content Frequency
Refers to the buyer is not in accordance with the path of
payment in the bank documents which the seller provides,
and pay the payment to the sellers account in other bank, 50
resulting in the misappropriation of the payment by the
seller.
Refers to after receiving goods the buyer pay the payment
in time earlier than the sellers financing maturity date, 8
resulting in misappropriation of payment by the seller.
Refers to the buyer and the Seller have contract dispute due
to the quality of the goods, leading to the buyer reject the
8
goods or refusal to pay money, which results in
uncollectible receivables corresponding to the financing.
Refers to the buyer loses the ability to pay due to poor
management, resulting in uncollectible receivables 3
corresponding to the financing.
Refers to the buyers local area occurs political change,
significant fluctuations in the economy, war or other force
majeure, leading to devaluation, trade barriers and other
unfavorable factor, resulting in the buyer fails to remit or 14
extend the terms of payment to the seller, making the
receivable corresponding to the financing unable to recover
in time.
Refers to the seller client obtain financing through the
replacement of documents or other means, which means
4
that the actual logistics and document information is
inconsistent, resulting in accounts receivable is diverted.
176
 From the international factoring financing risk classification of Bank A Zhejiang branch, risk
factors of both customer credit level and business debt level showed a high concentration. The
external guarantee risk has become the maximum credit risk factor that influence international
factoring financing credit assets security, and accounts receivable corresponding to the financing
being diverted becomes the maximum debt risk factor.
Risk Assessment
Analyzing the identified risk issues and understand how the potential issues influence achievement of
the objective of enterprise, is the important basis to determine the risk response measures.in these
case, Bank A Zhejiang branch assesses risk items of international factoring financing mainly rely on
the experience of judgment. Although, through the subjective evaluation, it showed customer access
and payment of accounts receivable is the main risk issues of international factoring financing, it is
abstract to assess potential risk impact of each risk factor. This section make statistics of occurrence
frequency of each issues according to time dimension to assess impact of each risk issues explicitly.

Figure 2.2 the occurrence frequency time distribution map of credit risk factors among factors that cause undesirable
international factoring financing business
Analyze from table 2.1 and figure 2.2, among the risk factors of customer credit level, A1( the
external guarantee risk) occurs with high frequency up to 39 times and increases year by year. Since
2012, A1 has dominated the highest frequency of adverse factors, which means that external factors
are the main source of business risk and also reflected the universality, continuity and complexity of
guarantee chain risk in Zhejiang area in recent years, have a very serious impact on the real economy.
In this case, the risk issues of Bank A involves lots of local guarantee enterprises.
A2(policy changes of financial institutions) occurred 17 times, with a high frequency from 2012 to
2014, which means that under the environment of increasing credit risk banks tend to tighten the risk
preference and take the initiative to adjust the credit strategy of behavior more frequently, resulting to
increase customer credit risk. A5( weakness of enterprise management) occurred 23 times, with the
second most high frequency in 2012 and 2013. And it listed third in 2014 and 2015, mainly because
of the slow transformation and upgrading of the extensive management mode of Zhejiangs private
enterprises. Under the poor internal and external economic environment, main business
mismanagement problems occur easily, resulting in the risk factors playing an important role for a
long-term. A7 (periodical industry risk) occurred 11 times, particularly prominent in 2012 and 2015,
reflecting the unsatisfying macroeconomic situation in the past two years. Especially in 2015,
traditional labor-intensive low value-added industries represented by the textile and chemical fiber
industry were severely affected, and large number of international factoring financing business
customers in the textile and chemical fiber industry experienced bankrupt collapse.

177
Figure 2.3 Time distribution map of occurrence frequency of credit level risk factor among factors that cause undesirable
international factoring financing business
Analyzing from table 2.2 and figure 2.3, among the main business debt level risk factors, B1 (Seller
misappropriation due to the buyer failing to pay the payment according to the instructions of the
return path) occur with high frequency up to 50 times, becoming the most important adverse factors
in debt level and with a sharply rising trend in annual frequency distribution. It show that, on the one
hand, increasing mobility is the first choice of the enterprises in the credit risk. Transfer and
misappropriation of accounts receivable have natural power. And the single financing debt is more
common. On the other hand, to the relationship between banks and enterprises, buyers and sellers
have natural alliance, in which foreign buyers may agree to choose the path of remittance out of
contract or invoice at the request of sellers. However, domestic banks currently have no effective
measures of monitoring. In this case, all sales of accounts receivable of Bank A Zhejiang branch were
misappropriated in this risk event. B5 (The payment cannot be remitted or delayed payment due to
the buyers local political risk or other force majeure factors) occurred 14 times, with a rising trend
from 2012 and a particularly high frequency in 2015, which reflected the increasingly complex
external environment. The instability factors, brought by the changes in international political and
economic situation, have an increasingly impact on company export, and increase the enterprise risk
and the debt risks of international factoring financing business.

Conclusion
According to the evaluation of the risk factors, this paper considers that the international factoring
financing business is credit business on the premise of the transfer of accounts receivable. Its first
source of repayment is different between general credit business. The misappropriation of accounts
receivable will directly leads to the lack of the first source of repayment of the debt for bank.
Therefore, the risk factors of debt level are the main risk factors in the international factoring
financing business of Bank A Zhejiang branch. According to the typical risk events and the
operations of Bank A, the debt risk factors, such as the mismanagement of accounts receivable, lead
to the outbreak of international factoring financing business risks and impede business development.

References
[1] Ackerlof, G. the market for lemons: Quality Uncertainty and the Market Mechanism, J.
Quarterly Jounal of Ecomomics 84 (1970) 488-500.
[2] Spence, M. Job Market Signaling, J. Quarterly Jounal of Ecomomics 87 (1973):355-374
[3] Stiglitz,J.E. and Weiss,A. Credit Rationing in Market With Imperfect Information, J. Amercian
Ecomomic Review 71 (1981):393-410

178
[4] Information on www.lloydslist intelligence.com
[5] Information on http://onetouch.alibaba.com
[6] Information on http://www.inter-factoring.com/2015/blyj_0623/366.html
[7] The state owned assets supervision and Administration Commission of the State Council.
Guidelines for the comprehensive risk management of the central enterprises. The reform of the state
owned assets supervision and Administration Commission, [2006]

179
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Chinese Shadow BankingCredit Creation Mechanism and

Credit Expansion of Bank Financial Products
Cai-xia ZHANG
China University of Political Science and Law, NO. 25, Xitucheng -Road, Haidian
District, Beijing, China, 100088

Keywords: Shadow banking, Bank financial products, Credit creation mechanism,

Credit expansion.

Abstract. In China, shadow banking can be described as credit intermediations

involving entities and activities outside the regular banking system broadly, also some
non-bank credit entities and activities. Then we should pay more attention on shadow
banking, which can particularly increase maturity and liquidity transformation,
imperfect credit risk transfer and/or leverage by different financial tools. In our
country, the financial system is dominated by commercial banks, so more and more
internal financial innovations, especially bank financial products could be viewed as
the representative of shadow banking. In essence, the process of bank financial
products is not an independent credit creation, but it can enlarge the credit creation of
commercial banks and enhance the scale of credit expansion by means of trust loans,
entrusted loans, trust beneficiary, specific assets usufruct, and the asset pool, which
will result in a higher liquidity risk. Therefore, expanding the scope of the legal
deposit reserve rate, establishing more laws and regulations about bank financial
products, and constantly improving the internal management mechanism of bank
financial products are particularly important.

The Definition of Chinese Shadow Banking

The modern "shadow banking" was proposed by McCauley in 2007. These shadow
banking can be known as some financial institutions outside the regulatory system,
corresponding to the traditional commercial bank system, which also can be named as
Shadow Financial System, Parallel Banking System or Quasi Banking System. Since
then, Gross (2007), Gorton (2010) [1], Krugman (2008), Paul Tucker (2010) made
various interpretations about shadow banking system from different perspectives [2,
3]. In its October 2011 report, FSB broadly defined shadow banking as the system of
credit intermediation that involves entities and activities fully or partially outside the
regular banking system, and it has the potential to pose systemic risks or regulatory
arbitrage risk, particularly on activities involving four factors: maturity transformation;
liquidity transformation; (iii) imperfect credit risk transfer; and/or (iv) leverage. That
is a broadly definition of shadow banking [4, 5].
After sub-prime crisis in United States, more scholars and related sectors in China
have paid more attention on the shadow banking system [6]. For example, Yi Xianrong
pointed out that "Some activities as long as involved borrowing relationship and
outside the regulatory system all belong to the shadow banking. Xiao gang, as the
former chairman of China Securities Regulatory Commission, said that the forms of
Chinese shadow banking usually referred to financial products, underground financial
and some off-balance sheet lending. Zhou Xiaochuan indicated that shadow banking
referred to some non-bank financial institutions unregulated or less-regulated by
traditional regulatory agencies, such as hedge funds, private-equity fund and some

180
special purpose entity (SPV) [7, 8, 9]. In 2011, CBRC sets up special column about
shadow banking and defined shadow banking as credit intermediation.
At present shadow banking system has not been clearly defined [10]. According to
FSB, we can put forward the definition of Chinese shadow banking system as credit
intermediation outside the traditional banking system. Also, Chinese shadow banking
system can realize the functions of traditional banks, such as maturity transformation,
liquidity transformation, and credit risk transfer and highly leveraged through different
financial instruments. Firstly, shadow banking is different from the traditional
commercial banking regulatory system, rather than completely free from supervision
or less-regulation. Secondly, shadow banking system can be considered as various
credit intermediations, including series of financial entities, activities, behavior or
instruments. Thirdly, shadow banking should provide the functions, such as maturity
or liquidity transformation and credit risk transfer and so on. Fourthly, shadow
banking system may result in systemic risk or regulatory arbitrage risk for the whole
economy. At last, shadow banking should be dynamic. Any a credit intermediation in
its initial stage, due to its small scale, it is impossible to trigger systemic risk which
cannot be seen as shadow banking. With its expansion, it may become one kinds of
shadow banking system.

The Modes of Credit Expansion for Bank Financial Products

Bank financial products magnify the scale of credit creation and credit expansion of
commercial banks. The credit expansion of traditional commercial banks mainly rely
on some deposit and loan business, while financial products are different, the
intermediate links may be more diverse and complex. In the early stage, commercial
banks raise money by issuing RMB financial products, and these funds are mainly
invested into some fixed-returns products, such as bonds, bank bonds, bills, money
market funds and so on. With the development of financial innovation and financial
reform and the increasing social demand for wealth management products, commercial
banks began to rely on credit cooperation expanded rapidly into the stock market and
industrial investment. With QDII, more financial products began to appear in economy
which refers to interest rate, currency or commodity price. Overall, they can be
summarized into the following seven categories:
The Credit Loans of Financial Products
The credit loans of financial products, in nature can supply funds for some demanded
corporate by use of trust company, which can be seen as an intermediation. The
process is shown in Fig.1. Firstly, some commercial banks issue some financial
products and collect funds on the basis of the delegation and empowerment of
investors. Then as single clients, these commercial banks invest all of funds into the
plan established by trust company as trustees and supply funds for enterprises in
various forms of loans. In such financial products, banks and trust companies charge
fees and the customers can get benefits on the premise of taking risks. In these
products, trust companies are just as related bridges; commercial banks play a
dominant role in trust loans and while the trust companies can be seen as medial tools
in borrowing business. The process of trust loans is similar to the general loans, but
they are not in bank-balance sheet for the traditional banks and unnecessary to accept
bank statutory deposits reserves. Therefore the trust financial products essentially can
be seen as the loan of commercial banks in order to avoid regulatory and weaken the
effects of currency policy regulation. Moreover, it can be invest into energy or real
estate at last.

181
 Investor

Investment Payment

Commercial Banks

Fund trust Payment

Loans
Trusts Financing Enterprise

Principal
interest
Figure 1. The credit loans of financial products.

Trust Beneficiary Right Transfer Financial Products

Due to the limit to such credit loans of financial products, commercial banks start to
invest into the trust beneficiary right transfer financial products.
The first one is the "bridge mode", that is to say, commercial banks plan to invest
the trust beneficiary right, just to find the bridge company, not to transfer the
beneficial right. The specific process is shown in Fig.2. Firstly if the financing
companies need funds, these "bridge company" as a single trustee can be set up trust
financial products, and invest these funds into financing company by issuing loans (or
providing financing by another mode), then financial bank get trust beneficiary right
from "bridge company". This mode elongate the process of transferring credit assets
which belonged to trust company,in nature it is also credit financing.

Commercial Banks Bridge Company

Trust beneficiary Trust Plans

right
Trust Insterest Trusts

Interests Trust Loans

Financing Enterprise

Figure 2. Trust beneficiary right transfer financial products.

The second one is "double trust mode". Its nature is to establish some
self-benefit-trust scheme by the related finance companies and transfer trust
beneficiary right to bank financial products. These financial products seems to transfer
trust benefit right, but there exists more dislocations in real process. For example, the
investment party essentially get high returns from the investment of financial products,
and trust company acts as channels of commercial banks, while for financing
enterprise, in essence it is a behavior to avoid avoid the supervision of loans and
deposit. In June 2011, the Department of ADB in BRC issued clearly that some trust
businesses established by commercial banks can be regarded as credit cooperation,
which including banking funds directly given by trust company or indirectly given by
the beneficial right, and all of them should be appropriately supervised and seen as
bank-trust credit cooperative businesses especially in the process of calculating risk
capital.

182
Entrusted Loans Financial Products
Entrusted loans financial products put credit funds into market by entrusted loans. In
some regulations such as General Loans Rules and Commercial Bank Law, lending
behaviors between different enterprises directly are forbidden, but the government
allows to sign the tripartite contract to realize the financing between different
enterprises if commercial banks as intermediary. According to the various financial
needs, entrusted loans also has two ways: one is to introduce other banks as the
intermediary of entrusted loans, all of bank financial funds are issued through these
trustee, such as CCB Inner Mongolia Branch issued " Qianyuan "series of entrusted
loans financial products. The other one is to transfer creditor's rights established by the
original creditor entrusted loans to the bank's financial products, which commonly
known as the entrusted loans financial products, such as Bank of Beijing" beyond
"series PB11077, commissioned loan debt financial products. Regardless of what
form, commercial banks as the lender (the principal) only charge a little fee, do not
assume risk loans.
Specific Asset Returns Financial Products
The definition of invests financial assets by China Banking Regulatory Commission is
equity rather than debt, that is to say, financial investment cannot form a loan property
rights. Therefore, the specific asset returns financial products have the space for
development. These financial products are based on some specific assets or returns
rights belonged to some enterprises, and also commercial acceptance bills, accounts
receivable, other receivables, inventory and fixed assets etc. can be seen as these
specific assets or assets rights. At present, receivable assets holds the dominant
position, which accounting for about 50%. Although these specific asset returns
financial products are defined as investment business, in essence, these financial
products are still credit derivatives for financial product.
Financial Product Between Banks and Securities
When stopping the entrusted loans financial products, there are some alternative
channels produced in financial products market. The most important one is financial
product between Banks and Securities. Banks can invest to credit assets or trust assets
by use of jointing trust plan into assets management by different securities company.
Due to the reporting system in the process of assets management, the approval is faster
and the costs are significantly lower than the trust. Nowadays, with more rigid
supervision for banks financial products, the brokers targeted asset management, as an
alternative channel, will play an important role in the future.
credit assets/Entrusted loans
Trusts

Funds Trust Maturity payment

Securities company

Asset management
Maturity payment

Commercial products

Figure 3. Financing products between banks and securities.

183
Entrusted Credit Financial Products
Another channel for financial products is to make a relationship with Gold Exchange.
The main process is to invest into some credit products issued by Gold Exchange. The
specific process can be described in Fig.4. First of all, commercial banks as a financial
planning manager, delegated by different customers, will make some financial
investment or assets management in accordance with the investment plan and some
ways agreed with customers; and then invest various funds into some credit products
issued by Gold Exchange.
Financing Consultant
Financing Enterprise Trustee or branch

Credit asset listing

Capital fund Gold Exchange

Exchange Delisted

Creditor's rights agreement Financial Manager (head office)

Figure 4. Entrusted credit class financial products.

Entrusted credit financial products can be seen as out-balance business, which

accounted for in subject Resale of financial assets", so they can be evading the
supervision of finance products, without any provision for capital and reserves. So
these financial products are different from financing products, not only their different
channels, but also the special investment into loans rights owned by some companies
who want to get more funds. But in reality, with the short history of the gold exchange,
this immature asset management function and the imperfect regulatory system, there
are still more risks in entrusted credit financial products.
Assets Pools Financial Products
Because of tightening regulatory and continual consolidation, commercial banks
generally began to turn to assets pools financial products. The key is to raise some
different financial products into an assets package, such as bonds, notes, money
market instruments, trust financing, deposits and other collections, and then make an
unified operation and management. The mode can be summed up in Fig.5. Firstly,
commercial banks collect various assets in-balance sheets (such as money market
instruments, bonds and credit assets) and form regular "asset pool"; at the same time,
banks establish a "funds pool" by raising funds from customers, and then establish
credit asset products according to the demands of some enterprise or individual
customer; finally, commercial banks make trust products into regular "asset pool"
which can be realized some assets out of table.
On March 25 2013, China Banking Regulatory Commission carried out effective
prevention to manage non-standardized credit assets, and required that these assets
must insist the principle of using one-by-one correspondence. When not up to these
requirements, commercial banks should provide risk weighted assets reserves
according to self-loans in the end of 2013. Meanwhile, this notice proposed the
principles of limit management, that is to say, commercial banks should reasonably
control the total amounts of money funds invested into non-standardized assets, which
should be the lower one between 35% of the accounts of financial products at any
point and 4% of total assets disclosed in the last audit report.

184
 Figure 5. The operating process of Asset pool financial products.

On-balance capital pool products

Off- balance credit products into the pools
Off- balance credit products

The Risks and Suggestion for the Development of Financial Products

From above analysis, we find that the development of financial products can be seen as
a process of avoiding regulatory by use of varieties of non-bank financial
intermediaries or credit regulatory capital. Financial products are ostensibly different
from traditional commercial banks money creation, mainly through financial contracts
the way money creation, but in essence it remains a debtor and creditor relationship
between different parties with chains in the supply and demand of funds. This form of
credit creation and credit expansion give birth to a higher risk due to its
highly-concealment and its association with Commercial Bank [11].
Such as the regulatory arbitrage risk for deposits. In our country, deposit ratio and
capital adequacy ratio are statutory supervision indexes for commercial banks, at
present the deposit ratio is less than 75%. Deposit ratio is more likely to be adopted by
use of financial products at the end of every quarter. In General, commercial banks set
the raising date and the maturity date at the end of every month, particularly in the
quarter, and then banks can realize to increasing the balance of the deposit at the end
of the month, quarter, half-year and the end of one year (see Figure 9). Even some
banks pay for high interest rates by use of some incomes in-balance, and trigger
vicious competition. In November 2011, the regulators will halt for some short-term
products which are less than one month.
Also the credit risk of regulatory arbitrage. The main purpose of financial products
is to exceed the limit of credit and to pursue of high returns. Looking for the
development of financial products, trust loans, trust beneficiary right, double trust and
entrusted loans and so on, all of them don't consume bank capital, and transfer the
financial program outside their strong balance sheet, in order to adjust the structure of
credit and to avoid the scale of credit supervision [12].
Again as the risks in assets pool: Firstly, the mode of assets pool exists obviously
defects, with continual funds input by use of "scroll issued" , and then put various
funds into unified assets pool, which must include some high-returns and low-liquidity
assets( such as credit assets). And the mismatch of short-term liabilities and long-term
assets must become one of important resources which induce the risk of systemic
liquidity. Secondly, asset pools are lack of transparency and its regulatory
effectiveness are easy to be interfered. So it is difficult to disclose effective
information and contact various funds with the subject of investment during the asset
pool products, which will make banks and their customers hard to put forward some
irrational estimate in the costs of investment and risk parameters. Thirdly, the
asset-pools closely linked to proprietary business, in essence, it is likely to cause
cross-infection risk because of some hidden guarantees for off-balance sheet business.

185
Finally, the level of management in different banks are uneven, with the increase of
financial products and the expansion of assets, more factors such as different industry
or geographic or various types of financial contracts may affect the flow of every cash,
and then will transfer risks to entire assets pool [13].
Based on these above risks, this paper puts forwards some suggestions in order to
improve the process of financial products as follows:
Firstly, it is important to expand the scope of statutory reserves, that is to say, banks
financial products especially non-guaranteed products should impose statutory reserve.
The statutory deposit reserve ratio is an indispensable instrument as one of monetary
policy in our country, and plays an important role in enhancing the effectiveness of
monetary policy. Therefore, imposing banks financial products, not only can weaken
the expansion effect of credit creation for financial products, but also facilitate Central
Bank to control money supply on the market effectively.
Secondly, we should put forwards some sound laws and regulations for financial
products. The interim measure for the management of personal financial services in
commercial banks so far has been for 9 years. During this period, financial products
have grown and developed gradually, more factors such as the regulations, the forms,
modes of operation, information disclosure and risk mitigation mechanisms for
financial products has taken place more and more great changes. Therefore, it is
necessary to amend the interim measures for the management of personal financial
services in commercial banks, especially taking accounting methods; general
processes; information disclosure and risk management systems into account. At the
same time, the government should put forwards some single rules or guidelines for
improving the internal management, the design and the provision for risk reserve.
Thirdly, it is necessary to perfect the internal management mechanism for financial
products constantly. On one hand, banks should establish special financial business
sector, which can be as professional system to build financial products risk "firewall"
and isolate the in-balance assets from off-balance assets. Then financial products can
play an important role in improving the operating mode and dispersing non-systematic
risks. On the other hand, banks should establish risk mitigation mechanism for
financial products in order to perfect risk monitoring mechanism. At last, the full
process of financial products should be reorganized completely, including pre-sales
information, after-sales service, funds management, accounting management,
investment management, information disclosure and complaints and so on, particularly
the risk-assessment process for financial products.

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187
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Empirical Study on the Correlation Among International Stock

Markets Based on the Multi-scale Analysis

Wen-rong PAN*, Jia-fu ZHAO and Shu-min PAN

School of Statistics, Jiangxi University of Finance & Economics, Nanchang, 330032, Jiangxi, China
Email: 979174995@qq.com
*Corresponding author

Keywords: Stock markets correlation, Wavelet analysis, Multi-scale analysis, Principal component
analysis, Diversification of risk.

Abstract. In this paper, it was the multi-scale analysis method that was used to decompose the stock
index of international stock markets into a long - term trend signal and two short - term wave signals.
Then, by the principal component analysis method, all of the stock markets were divided into several
different categories. The study demonstrated that the developed countries and the emerging
economics were divided into two different categories in the long term of trend. For the four days
short-term fluctuations, the United States and Europe were the same category, while Asia-Pacific
countries were divided into the another category. For the two days short-term fluctuations, all the
stock markets are divided into three categories. European and American stock markets were classified
into the same category. Besides, the Asia Pacific stock markets were divided into the same category
except HK stock market and Shanghai stock market, which were another category. Finally, the article
put forward that in order to reduce the investment risk, the investment capital should be dispersed into
different categories of the stock markets.

Introduction
Compared to the hundreds of years history of the United States stock market, it was very short of the
30 years history of Chinese stock market. But the development of Chinese stock market was unquiet.
From December 1990 to the present, Chinese stock market has experienced eight upheavals,
including the establishment of the China Securities Regulatory Commission, non-tradable shares
reform, the implementation of the QFII and QDII in China, and so on. In recent years, it was these
factors, such as rapid progress of computer technology and the continuous openness to the world that
made Chinese stock market closer with the rest of the world. Meanwhile, Chinese stock market was
inevitably affected by fluctuations of international stock markets. Therefore, the study on stock
markets risk control was important to stock markets regulators and investors. It was generally
known that a method of controlling financial risk was diversification of capital, which meant putting
eggs into more than one basket. If investors put their capital into stock markets without strong
correlation, the risk were scattered. If the capital was put into two stock markets with strong
correlation, the investment risk would not be scattered. It was why the correlation among international
stock markets was of great significance to the international stock markets regulators and investors.

Literature Review
Aviral Kumar Tiwari, Arif Billah Dar, Niyati Bhanja and Aasif Shah (2013) studied stock Markets
integration in Asian countries. They used methods of the multiple wavelet correlation and multiple
cross correlation to evaluate the linkage of Asian stock markets. The result showed that correlation
among the low frequency data of stock markets were stronger than those among the high frequency
data. In order to study volatility of Shenzhen stock market and Shanghai stock market, Dandan
Xi(2012) decomposed the closing price index which was from 1990 to 2010 to different scales data,
188
and analyzed the symbolization of these data. Finally her distinguished the principal patterns and
abnormal changes in the different time scales, which provided risk management strategy to different
types of investors.
Throughout the domestic and foreign literature, it was rough of the researches on the correlation
among different stock markets in the past. Some of them were correlation analysis of the stock
markets returns, and the others were just about the correlation of the stock markets return in different
time scales. Wavelet multi-scale analysis can analyzed the correlation of the stock price from different
time scales and frequencies, which can provide reference for investors with different investment
strategies. In this paper, the principal component analysis was applied to get the principal components
of the data which was decomposed into different scales. The stock markets were strong correlated if
their factor loading were large in the same principal component. In order to reduce the risk, investors
should divide their assets into stock markets of different principal component.

Methodology

Multi-scale Analysis
Multi-scale analysis was an important part of wavelet analysis theory. It was established on the basis
of functional space and Fourier transformation. Through the multi-scale analysis, the signal was
decomposed in different function space, that is, the different scale space.
Continuous Wavelet Transformation. Wavelet transformation can be described as a projection
of signal f (t ) on wavelet basis function {a , (t )}a >0, R . This projection process was a function of
inner product: f (t ) L2 ( R) , the inner product of functions was:

1 t
WT f (a, ) = f (t ), a , (t ) =
a R
f (t ) (
a
)dt . (1)

The inner product above was the continuous wavelet transformation of function f (t ) , which was
called wavelet transformation coefficient. If a and ( a means scale factor and means displacement
factor) varied, then the basis function a , (t ) should vary. Changing the basis function would bring
out change of the projection of function f (t ) in the direction of different vectors, thus the original
signal was decomposed into different directions.

Discrete Wavelet Transformation. In the daily life, most signals were discrete, and the computer
was base on digital processing mode, which was suitable for processing discrete signals. So the
continuous wavelet transformation was necessary to be discretized. Discrete wavelet transformation
is the discrete treatment of independent variables a and in essence.
There were many ways of discretization of a and , which were widely accepted and applied in the
following ways:
m
Discretized the scale factor a in the form of power series. That meant a = a0 .
m
At the same scale, the displacement factor was uniformly discretized. That meant = ka0 0 .
Where, a0, 0 R, and a0 > 0, 0 > 0 . m, k were integers. Then the wavelet basis functions and
wavelet transformation could be expressed like this
m m

a m ,k = a0 2 (a0 2 t k 0 ) (2)
0 0
m
WT f (a0m , k 0 ) = f (t ), a m ,k = a0 f (t ) * ( a0 mt k ) dt

(t )
2 (3)
0 0 R

189
 Assumed that a0 = 2, 0 = 1 , then the wavelet basis was simplified as:

m

m ,k = 2 2
(2 m t k ) (4)

This wavelet base was commonly applied in engineering applications. And the discrete wavelet
transformation becomes the following form,
m m

WT f (m, f ) = f (t ), m , f (t ) = 2 2

R
f (t ) * (2 2
t k )dt (5)

The above discretization scheme was a kind of dyadic discrete scheme with good property.
Multiscale Analysis Derivation from the Angle of the Filter Bank. Assuming the signal was
x(t ) ,the sampled signal x(n) was passed through a low pass filter H. This filter could strain off the
high frequency signals which was set in advance, and retains the low frequency signals. Similarly,
after passing the sampling signal through a high filter G, there will be a high frequency signal to be
output .Then on the frequency band 0 ~ ,the frequency spectrum of the signal will be decomposed
into the low frequency in 0 ~ / 2 and high frequency signals in / 2 ~ . Low frequency signal
could be interpreted as the smooth part of the original signal whose rough had been erased, and the
high frequency part was the details of the original signal.

Figure 1:Signal decomposition in the frequency domain

After passing two filters G or H, the bandwidth of the output signal was reduced to 1/2 of the
original bandwidth, so the sampling rate could be reduced to 1/2 of the original signal sampling rate
without losing information.
Principal Component Analysis
The basic idea of Principal Component Analysis(PCA): conversion of massive relevant random
variables into less random variables which are irrelevant to each other; In the study of Algebra,
conversion of former Multivariate covariance matrix into diagonal matrix with less variables; In the
study of Geometry, dimension reduction for high dimensional variables; in the study whichs
prospective abstracted according to features, PCA can be taken as an abstract method which based on
Minimum mean square error.
Assuming in a real question, there are p index, marked as data matrix with x1 , x2 ,L , x p , n samples.

x11 x12 K x1 p

x21 x22 K x2 p
X = = [ X1 X 2 L X P ] (6)
M M M M

xn1 xn 2 K xnp

190
 PCA is to convert p Observed variables into p new variables by Combination of linear
transformation.

F1 = a11 X 1 + a12 X 2 + L + a1 p X p

F2 = a21 X 1 + a22 X 2 + L + a2 p X p
(7)
L
F = a X + a X +L + a X
p p1 1 p2 2 pp p

Then, F1 is the first principal component, F2 as the second, and so on.

Empirical Analysis
This paper selects the most representative stock index from NPC(November 8, 2012) to October 22,
2015 of the different countries or regions, including the composite stock index on the Shanghai Stock
Exchange, the Taiwan weighted index, the Jakarta index, Nikkei, Hang Seng Index, South Korea's
Kospi index, the FTSE 100 index, Germany's DAX index, the standard & Poor's 500 index,
Australian Standard & Poor's 500 index. Then seek the yield of these data ,and the formula is:

Rt = 100 ln( Pt / Pt 1 ) (8)

In this paper, MATLAB is used to analyze the yield. The wavelet basis selected to decompose the
data was DB6 wavelet. After decomposed,the data was turned into low frequency signal a1 and high
frequency signal d1 , d 2 . d1 corresponds to 2 days fluctuations of the data,which often reflects the
operation of short-term speculators. d 2 corresponds to 4 days fluctuations of the data, which generally
reflects the operation of long-term investors.Whats more, low frequency approximately represents
the long-term trend of the stock.
Take a case study of Shanghai Stock Exchange Composite Index yield. Firstly, after 2 layers
decomposition of data, the result turn out to be a1 , d1 and d 2 . Low frequency signal a1 and high
frequency signal d1 are obtained by wavelet decomposition of the original signal. After a1 being
decomposed, the decomposing result d 2 is the high frequency part of a1 ,which describes the
investment strategy of long-term investors.Then analyze the principal component of a1 , d1 and
d 2 respectively .
Use SPSS software to execute the principal component analysis to a1 , d1 and d 2 .The information
about the independent variables of each principal component can be obtained by calculating the
rotation factor load matrix. Generally, the independent variables were categorized into the main
component, in which the load value of independent variable is the largest. Table 1 illustrates rotation
factor load matrix.

191
 Table 1. Rotated component matrix of a1 , d1 and d 2 .

a1 d1 d2
Component Component Component Component Component Component Component
1 2 1 2 3 1 2
China -0.038 0.773 0.036 -0.063 0.948 0.686 -0.019
Taiwan 0.471 0.647 0.786 0.071 0.054 0.753 0.264
Indonesi 0.615 0.233 0.046 0.586 0.188
0.335 0.558
a
Japan 0.573 0.379 0.661 0.022 0.07 0.565 0.345
HK 0.350 0.802 0.527 0.304 0.634 0.786 0.342
Korea 0.378 0.707 0.817 -0.03 0.031 0.775 0.147
UK 0.876 0.287 0.213 0.877 0.124 0.292 0.896
Germany 0.860 0.168 0.115 0.882 -0.004 0.196 0.888
USA 0.870 0.163 -0.003 0.686 -0.006 0.138 0.892
Australia 0.573 0.446 0.678 0.182 0.301 0.516 0.43

Take the result of a1 as an example. The calculation indicates that the load value of Japan, UK,
Germany, USA and Australia is relatively grate in the first principal component, which means that the
linkage of the stock market in these countries is relatively strong. And the second principal
component get grater load value in China, Taiwan, Indonesia, HK and Korea, which shows that the
stock market of 5 countries or regions has strong correlation.
The results of empirical analysis could be summarized as Table 2.
Table 2. Summary of the results of empirical analysis.
Signal type component Stock market
First principal component Japan,UK,Germany,USA,Australia
a1 Second principal component China,Taiwan,Indonesia,HK,Korea
First principal component Taiwan,Indonesia,Japan,Korea,Australia
d1 Second principal component UK,Germany,USA
Third principal component China,HK
First principal component China,Taiwan,Indonesia,Japan,HK,Korea,Australia
d2
Second principal component UK,Germany,USA

A Discuss on Linkage of Different Stock Markets and Advice for Investors

PCS on long-term trend rate of stock returns, act of short-term speculators, act of long-term
investor can give us the results of the relevance of different stock marks. According to the result of
empirical experiment , we can have the conclusion as followed.
Based on long-term trend of stock returns rate, the stock markets of Japan, UK, Germany, USA and
Australia were of high relevance. It was obvious that the real economy of mentioned country had
higher connections with many currency policies. Real Economy and currency policies had most
powerful affections on the long-term trend of stock markets. Meanwhile, the stock markets of China,
Taiwan, HK, Indonesia and Korea were of high relevance. For these Asian Country and regions
economy and currency policies were closely related to China. Among mentioned 10 economies,
China and USA were of the most importance and they were of strongest influence. Incidentally, they
were spread into different PC. This was mainly caused by the difference of Chinese and USA currency
policies, for instance, in 2015, Chinese Central Bank reduced benchmark deposit rate 3 times, but
Federal Reserve demanded a increase on interest rate. That was why it was easy to understand why the
turnover of them was enormous meanwhile the long-term trend of stock markets were not of high
relevance. For long-term investor, to reducing risk, it is advised to invest in stock markets of different
PC.

192
 Based on short-term speculators acts, stock markets of Taiwan, Indonesia, Japan, Korea and
Australia are of high relevance. UK, Germany, USAs stock markets were of more obvious relevance.
Chinese and HKs relevance were more obvious among others. The Short-term changes of high
relevance indicated that the info-exchange speeds were swift. From the result of classification, Asian
stock markets, China and HK were of class 1, which meant the info-exchange speed between them
was smooth. That was directly connected with deeper degree of capital openness between China and
HK. The other stock markets in Asia and Occidental stock markets were of class 2, which indicated
that info-openness were higher and capital flow speed were quicker among Asian stock markets,
compared to those between Asian and Occidental stock markets. On the other hand, among
Occidental stock markets, info-openness were higher and capital flow speed were quicker, compared
to those between them and Asian stock market. Thus, short-term speculators should spread capital
into all 3 classes stock markets to reduce risk.
Based on acts of relative long-term investors, China, Taiwan, Indonesia, Japan, HK, Korea and
Australia can be classified as class 1, while UK, Germany and USA can be classified as class 2.
Relative long-term investors strategies would be affected by many factors combined, include
long-term factors and short-term factors, for instance, the conformity between real economy and
currency policies, the capital flow speed between markets and info-exchange speed, etc. The result of
classification affirmed this phenomenon that markets of Asia and Occident were obviously different
class. Also it affirmed that markets of close region had higher relevance according to long-term
investors act. If investors should intend to have a long-term investment and reduce the risk, they
should invest the capital into Asian and Occident stock market.

Acknowledgements
Wenrong Pan is partially supported by a grant from the National Social Science Foundation of China
(No.15BTJ029).

References
[1] Silvo Dajcman,Mejra Festic,Alenka Kavkler(2012). European stock market comovement
dynamics during some major financial market turmoils in the period 1997 to 2010-a comparative
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1249-1256. DOI:10.1080/13504851.2011.619481
[2] Jianqing Fan and Yazhen Wang(2007). Multi-Scale Jump and Volatility Analysis for
High-Frequency Financial Data. Journal of the American Statistical Association ,Vol. 102, No. 480 ,
pp. 1349-1362. DOI: jstor.org/stable/27639985
[3] Arif Billah Dar, Niyati Bhanja and Aviral Kumar Tiwari (2014). Exchange Rate and Stock
Price Relationship: A Wavelet Analysis for India. Indian Economic Review. Vol. 49, No. 1 , pp.
125-142. DOI:jstor.org/stable/24583410
[4] Viviana Fernandez(2005). Time-Scale Decomposition of Price Transmission in International
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jstor.org/stable/27750457
[5] Aviral Kumar Tiwari, Arif Billah Dar, Niyati Bhanja and Aasif Shah(2013). Stock Market
Integration in Asian Countries: evidence from Wavelet multiple correlations. Journal of Economic
Integration. Vol. 28, No. 3 , pp. 441-456. DIO: jstor.org/stable/41959044
[6] Michael Graham, Jussi Nikkinen(2011). Co-movement of the Finnish and international stock
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Hedrih(2012).Analysis of Stock Market Indices with Multidimensional Scaling and Wavelets.
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194
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

An Empirical Study About the Impact of Tax on Foreign Direct

Investment Inflow to Guangdong Province
Li-Cai LV1,a,*, Ja-Wei CHEN2,b
1,2
College of Economics and Management, South China Agricultural University, Guangzhou, China
a
licail@scau.edu.cn, b453105638@qq.com
*Corresponding author

Keywords: Tax; Foreign Direct Investment; Empirical Study

Abstract: The aim of this paper is to examine the relationship between tax and foreign direct
investment in Guangdong Province basing on econometric model. The results indicate that tax is
not the main factor in statistics and less important than good infrastructure and open market. In the
long run, the results also imply that the current new tax policies wont affect negatively foreign
direct investment inflow to Guangdong in the future. On the above analysis, some policy
implications are presented.

Introduction
Since reform and opening up, Guangdong foreign investment has made great achievements under
the impetus of a series of policies such as preferential taxation. By the end of 2008, Guangdong has
utilized US$ 213.658 billion of foreign capital, accounting for 25.06% of the total amount absorbed
by China during the same period. At present, foreign economy has become an important part of
Guangdong national economy, foreign economy plays an active role in capital formation and job
creation, increases tax and foreign trade, and promotes technical progress, thus making indelible
contribution to the economic and social development of Guangdong. On March 16th, 2007, the fifth
meeting of the Tenth National Peoples Congress passed the new Enterprise Income Tax Law of
the Peoples Republic of China and would put into effect on January 1st, 2008, which means
domestic and foreign enterprises shall be levied according to the same tax base and tax rates , and
enjoy the same preferential taxation and other aspects. In other words, two-tax system is replaced
by unified tax system. However, whats the impact of taxes on attracting foreign investment?
Hows the effectiveness of tax incentives policy? What kind of impact will unified tax system
produce on Guangdongs foreign investment in the future? This paper attempts to answer all the
above issues.
The content and structure of this paper is organized as follows: the second part is a review of
existing research; the third part is the empirical analysis of tax effect on foreign investment in
Guangdong; the fourth part is further discussion of the empirical analysis results; and the last part is
the policy implications.

Literature Review
In theory, when all the other location factors are the same, tax will affect net income of the
investment, thereby affecting the location decision of foreign investment. However, in practice,
location factors of different countries are often different. Not only the tax policy, but also factors
such as geographic conditions, business environment, management policies, market size, resource
endowments and human capital are different. All these factors mentioned above can affect the
location decision of foreign investment. The survey results of Aharoni (1966) show that tax
concessions of host country have no impact on foreign investment location decision, therefore tax
relief incentives on foreign investment location decision-making is very limited. Agodo (1978) has

195
done regression analysis on 46 investments of 33 US. Companies in 20 African countries and found
that the impact of tax concessions on foreign investment location decision is not significant.
Simmons conducted a survey of the worlds 600 largest multinational corporations and found that,
among many factors affecting FDI location decisions, corporation tax ranks eighth in importance,
directly behind political stability and market size. However, some survey found that corporation tax
is an extremely important factor in foreign investment location decisions (Rudding, 1992).
Specifically to the research related to China, Simmons ( 2003) studied the foreign inflows in seven
major countries and regions, including Hong Kong, Singapore, China (Mainland), Australia,
Canada, the United Kingdom and the United States. The correlation coefficient of tax composite
index to foreign investment is 0.429, and Hong Kong is especially attractive because of simplified
tax program, stable tax system and low tax rate. However, Chinas tax system is not so perfect,
when removing this object, the correlation coefficient increases to 0.6, thereby strengthening the
relationship of tax and foreign investment.
Lu Minghong (1997) investigated the distribution characteristics of foreign investment in Chinas
29 provinces from 1988 to 1995, and found that preferential tax policies have a significant effect on
attracting foreign investment. Li Zonghui and Lu Minghong (2004) used panel data from 1989 to
1993 to examine the effectiveness of preferential tax policies to foreign-invested enterprises, and
considered that since reform and opening up, preferential tax policies have a significant impact on
foreign investment distribution in China. Although the impact of individual tax incentives on
foreign investment is small, while combining varieties of tax incentives together, the impact can be
much more significant. Pan Yiming (2006) studied and learned that tax incentives could help
attracting foreign investment in China, but the effect is not significant. Overall, the relationship
between taxation and foreign investment remains unclear, pending further empirical evidence. In
addition, existing studies mostly focused on the macro level of the country, which may have
overlooked the impact of taxes on specific areas. In this study, an empirical investigation of the
relationship between Guangdong foreign investment and taxation will be conducted. On one hand,
this study can provide empirical evidence from Guangdong to support existing theories, on the other
hand, it can provide a corresponding theoretical support for Guangdong and Chinese government to
develop reasonable policies to attract foreign investment.

Empirical Analysis
In order to judge whether it will affect foreign investment, a simple way is to compare foreign
investment movements before and after the tax reform to see if it has undergone significant
changes. Looking back on the situation of Chinas foreign tax reform, On April 9th, 1991, the
fourth meeting of the Seventh National Peoples Congress passed Enterprise Income Tax Law for
Foreign-Funded Enterprises and Foreign Enterprises of the Peoples Republic of China and
implement an unified-income-tax law on Sino-foreign joint venture enterprises, Chinese - foreign
cooperative enterprises and foreign enterprises in the same year, therefore tax burden for foreign-
invested enterprises was reduced generally. By comparing the foreign investment changes made in
three years before and after the tax reform in 1991, we find that the average annual growth rate of
foreign investment in Guangdong in the first three years after tax reform, is significantly higher than
the one in three years before the reform (see Table 1), which indicates tax reform at that time had a
positive impact on foreign investment in the short term. This simple method may overlook other
factors impact on foreign investment, such as market openness and infrastructure situation, so it is
difficult to simply draw to the conclusion that the rapid growth of foreign investment is due to tax
reform. In view of this, we intend to introduce the relevant variables to further examine the impact
of taxation on foreign investment.

196
 Table 1. Foreign investment changes before and after tax reform in 1991.
1988-1990 1992-1994
Contracted Actual Amount Contracted Amount Actual Amount
Amount
average annual
9.53 26.03 12.4 62.66
growth rate(%)
Variable Selections
There are many factors affecting foreign investment inflow, and some of the most common
factors include: market size, relative labor costs, interest rates, market openness, exchange rates,
market structure, geographic and psychological distance, political stability and some of the
variables related to business. As it is impossible to include all potential variables in this study,
therefore, it is necessary for us to select variables. Typically, we need to follow at least two basic
principles in variable selection: first, they must serve research objects and researchers main
emphasis; second, the data is available. Taking into account Guangdong actual situation and data
availability, we intend to select market size, infrastructure, labor costs, market openness and tax
burden as control variables, respectively measured in Guangdong GDP, total infrastructure
investment, average wage level, export proportion of GDP. And each variable meaning,
measurement, and expected symbols are shown in table 2:

Table 2. Variables measure and expected signs.

Affecting factors Measurement Expected symbols
market size Total GDP amount +
infrastructure total infrastructure investment +
labor costs average wage level
market openness export proportion of GDP +
tax burden actual effective tax rate
Model
This paper uses the traditional production function model. As expressing variables not only
reduce outliers, non-normal distribution of residuals and heteroscedasticity, but also make it easy to
examine the flexibility of some explanatory variables to foreign investment, and will not change its
main features. So the model is set after some variables are expressed in logarithmic form:

LnFDI 01LnGDP 2 LnINFR 3 LnWAGE 4 LnTAX 5 LnEX , (1)

Where FDI stands for foreign investment, GDP represents market size, INFR represents
infrastructure situation, WAGE represents labor costs, TAX represents tax burden level, and EX
represents market openness. 0 is the intercept,1,2,3,4,5 are the parameters to be estimated,
and is the random error term.
Source Description
The industry data are obtained from Guangdong Statistical Yearbook and Chinas tax
Yearbook. The tax burden is measured by the actual effective tax rate of foreign enterprises, which
is the quotient of foreign - related tax revenues divided by sales revenue of foreign enterprises. The
data period is from 1985 to 2006 considering their availability.
Estimation Results and Analysis
The model estimation results are shown in Table 3. Through repeated multiple stepwise-
regression-analysis, the filtered models are to be model 2, model 3, and model 4.

197
 Table 3. Estimation Results.
Explanatory Explained Variable Ln(FDI)
Variables (1) (2) (3) (4)
0.7827 -1.5914 -1.0287 -0.7311
Constant Term
(4.9196) (1.9393) (1.6326) (0.9937)
0.6284 0.7272** 0.8748*** 1.060***
LnINFR
(0.7024) (0.3021) (0.1629) (0.1354)
0.9461** 1.0587** 1.0649** 0.6817**
LnEX
(0.4550) (0.3982) (0.3726) (0.3066)
0.7102 0.7003 0.7277
LnTAX
(0.4355) (0.4258) (0.3979)
1.3381 0.1634
LnGDP
(2.3430) (0.7095)
-1.3255
LnWAGE
(2.5140)
R2 0.9220 0.9207 0.9204 0.9056
Adjusted-R2 0.8977 0.9020 0.9072 0.8957
F 37.8368*** 49.3212*** 69.3946*** 91.1635***
Note: All the results are calculated by EViews5.0 software, and values in brackets are standard deviations.
*** or**respectively shows the result is significant at 1% or 5% level.

Summary
In four models, tax burden level is not statistically significant, and the symbol is positive, indicating
that tax burden level is not a key determinant in attracting Guangdong foreign investment, in other
words, tax burden cannot prevent the enthusiasm of foreign enterprises investing in China.
Moreover, market openness is statistically significant in all the models, the infrastructure variable is
significant in the model (2), (3) and (4), which means market openness and continuous
improvement of the infrastructure are important determinants in attracting Guangdong foreign
investment. The coefficient of market openness is positive, which indicates that a higher degree of
market is conducive to foreign investment inflows, and implies foreign enterprises in Guangdong
are export-oriented. The coefficient of infrastructure is also positive, which means that better
infrastructure is conducive to attracting more foreign investment. In addition, market size and wage
level are not statistically significant, which explains, to some extent, market size and labor costs are
not major determinants of Guangdong for attracting foreign investment, and thus further support the
estimation result of market-openness to confirm that Guangdong foreign investment is mainly
export-oriented. But the coefficient of market size is positive, indicating that market size may have
positive impact on Guangdong foreign investment. The coefficient of wage level is negative,
indicating that higher labor costs may reduce foreign investment.

Acknowledgment
This work was supported by grants from the Chinas National Social Science Fund (11BJY106), the
Project of Guangdong Education Department Humanities and Social Sciences Base Project
(2012JDXM_0012), Guangdong Soft Sciences Project (2015A070704041). All remaining errors are
the authors responsibility.

References
[1] Y. Aharoni, The Foreign Investment Decision Process. Harvard University, Boston, 1966.
[2] O. Agodo, The Determinants of US Private Manufacturing Investments in Africa. Journal of
International Business Studies, 9(3), 1978, 95-107.

198
[3] R.S. Simmons, An Empirical Study of the Impact of Corporate Taxation on the Global
Allocation of Foreign Direct Investment: A Broad Tax Attractiveness Index Approach. Journal of
International Accounting, Auditing & Taxation, 12(2003), 105-120.
[4] O. Ruding, Report of the Committee of Independent Experts on Company Taxation. Brussels:
European Commission, 1992.
[5] Z.H. Li, M.H. Lu, The effective analysis of tax on foreign direct investment in China. Journal
of world economy, 4(2004), 15-21.
[6] Y.M. Pan, An Analysis of Sensitivity for Foreign Direct Investment in China. Journal of Tax
and economy, 2(2006), 52-54.
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38-41.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Study of Incentive Coefficient of Owner to Design Contractor

Based on Prospect Theory
Gui-Qin ZHANG1, Mu-Yang LI2,a,*, Tao YI1, Yu-Hong FAN3,
1
Department of Technology Economics, North China Electric Power University, Beijing, China
2
Department of Management science and Engineering, North China Electric Power University,
Beijing, China
3
State Grid Hubei Economic Research Institute, Wuhan, China
a
943168784@qq.com
*Corresponding author

Keywords: Design Phase, Incentive Coefficient, Prospect Theory, Psychological Effect

Abstract: The project cost control is an important goal for project control of owner under
guaranteeing project quality. As the key stage for project implementation, project cost control plays
a vital role. Therefore, establishing a good incentive mechanism will be helpful to promote design
contractor to optimize design and reduce the owner's investment. At present, the incentive for
design contractors has been extend from design phase to construction phase, but there seems no
ideal way to determine incentive coefficient. Based on the theory of incentive contract design,
introducing the prospect theory of behavioral psychology, this paper builds the incentive coefficient
model which determines the incentive coefficient, and provides the basis for the incentive of owner
to design contractors.

Introductions
70% of the engineering project cost has been basically determined at the design stage [1]. Owner
and the design contractors prefer to pursue their economic interests, which has the relation of
opposites rather than unity [2]. Owners establish the effective and reasonable incentive mechanism
in the design phase which could mobilize the enthusiasm and active the conductors, prompting the
contractor to reduce project budget and reduce the design change.
Many scholars at home and abroad have studied the subject that owner and conductors incentive
mechanism, which based on the conductors of rational human beings. Zhu Bing analyzed incentive
problems of the project cost in construction using principal-agent theory [3]. Li Lijun studied the
engineering cost control problems using the principal-agent theory [4]. Schttle Annett established
incentive model from the angle of information asymmetry [5]. But psychology research found that
the incentive effect contractors felt was not of expected utility, but that might be processed
psychologically. Booij, Adam S applied prospect theory to study humans decision-making
behavior, and felt that the actual utility people found not equal to the expected utility [6]. James C.
Cox continued to set up incentive mechanisms by applying prospect theory [7].
This paper divides the existing incentive indices into design budgetary estimate indices, design
schedule indices, reliable technique indices and design services indices. Using the incentive contract
design theory and prospect theory, this paper explores the psychological effects of contractors at
cost plus incentive fee (CPIF) contract mode. It is concluded that the maximize incentive coefficient
of contractors is motived, and provides a more realistic theoretical basis for the incentive
mechanism of design contractor.

200
Theoretical Basis
Prospect Theory
Prospect theory explained people's decision-making behavior through the utility human felt,
which was published in 1979 by Kahneman and Tversky. This theory has been successful used in
explaining a wide range of empirical regularities that have been documented outside the laboratory
when people face risk, such as the premium that equities demand over annuities in the market. The
theory has become a major hypothesis for individual behavior in economic analysis. The content of
prospect theory can be divided into value function and weight function.
Value Function. Value function focused on the human's gains and losses psychological effect.
The shape of value function reflects the psychophysics of diminishing sensitivity. Value function
has three important characteristics:
1) Relativity. Humans psychological "profit and loss" is a relative concept, which is losses and
gains relative to a reference point. Psychologically subjective judgment to the results is relative to a
natural reference point, while people pay more attention to the relative levels changing around a
reference point.
2) Sensitivity. Gains and losses follows the law of sensitivity decreasing.
3) Loss aversion. When faced with the same amount of gains and losses, loss effects on people is
greater than the utility.
Value function expression for benefits is:

v(x g ) = x , (2)

Value function expression for loss is:

v(x l ) = -(-x) , (3)

Where x represents the gain or loss relative to the status quo, > 1 is the coefficient of loss
aversion, and both and (0, 1) are the curvature parameters of utility.
Weighting Function. In the decision-making of actual personal estimate of the probability is
instructive thinking way in psychology instead of bayes' rule, penetrated decision weights of
personal value sensibility factor.
Probability weighting function for benefits is:

p
(p) = 1 , (4)
[p + (1- p) ]

Probability weighting function for loss is:

p
(p) = 1 , (5)

[p + (1- p) ]

Among them, and respectively represents the bending degree of probability weighting
function of gains and losses, which reflects the decision-maker s' different attitude towards the risk,
where 0 < < 1, 0 < < 1 .

201
Building Incentive Model at Construction Design Phase
Confirming of Incentive Indicators at the Design Stage
On the bases of other scholars research, this paper carries out four incentive indicators at design
phase, which are divided into design budgetary estimate, design schedule, reliable technology and
design service indicators. Contractor's incentive points of design budgetary estimate, design
schedule, reliable technology and design service four indicators calculated on industry average A B,
BB, CB, DB respectively in the tendering process.
The Construction of Incentive Mode
The Construction of Positive Incentive Model. Incentive coefficient model of design budgetary
estimate, reliable technology and design service three indicators were basically uniform, so taken
the design budgetary estimate indicator as an example, the paper built the incentive coefficient
model.
(1) The benefits utility of contractor
1) The value function
The data of budgetary estimate followed normal distribution N A ~ ( A , 2A ) . The save budget
amount for contractor was in line with the design of normal distribution N A1 ~ (A B - A , 2A1 ) . The
value of the function of save design budgetary estimate for contractor can be expressed as

v(x) = x , (6)

Where was incentive coefficient for the owners, x was the saving budget amount for the
contractor.
2) The probability weights
In the motivation of the owner to the contractor, incentive interval was set up, and different
incentive coefficient was set for different interval. Therefore, probability in the incentive interval
for the contractor can be expressed as:

x2
-
x2 1 22
p= e A1 dx , (7)
x1
2A1

p
(p) = 1 , (8)

[p + (1- p) ]

Incentive effect due to possible gains for the contractor as follows:

n
U A = v(x)* (p) , (9)
i=1

Where, x represented reduced design budgetary estimate relative to point incentives AB for the
contractor.
(2) The loss utility of contractor
Assumptions of the level of budgetary estimate can't break out its historical minimum level, the
contractor saving design budgetary estimate of 0 implied the efforts of 0. Contractor's efforts can be

202
regarded as monotone increasing function. Assuming that the contractor efforts can be expressed in
the form of currency.

L A = A tan A x , (10)

X represented the reduced design budgetary estimate relative to incentives point AB for
contractor.
Loss utility of the contractor was:

ULA = -(A tanA x) , (11)

When the effectiveness of obtaining the incentive for contractor was greater than the
effectiveness of efforts, the contractor would have an incentive to reduce design budgetary estimate.
So when U A = U LA , incentive coefficient of the design contractor can be solved.
In the same way, when U C = U LC , incentive coefficient of reliable technology indicator for design
contractor can be obtained on the different range.
When U D = U LD , incentive coefficient of design service indicator for design contractor can be
obtained on the different range.
The Construction of Design Schedule Incentive Model. Due to negative incentive was in top
priority for design schedule of contractor, and self-interest dictated the contractor avoid loss, design
schedule incentive didnt need to consider the utility, which need to be expressly agreed upon in the
contract.
Based on design schedule incentive indicators of punishment only, the incentive model was
expressed as

S = ( B - BB ) , (12)

B The actual design schedule of contractor

The incentive coefficient for evaluating design schedule indicator by the owner.

Solution of the Model

This paper collected 2 x 600 mw thermal power engineering budgetary estimate level, design
change level and loss level caused by design service in the calendar year of a contractor's design.
Solution of Contractor's Profit Utility
Calculated according to the collected contractor's design level, Suppose AB was 4.39465 billion
yuan, CB was 7.9 million yuan, and DB was 6.15 million yuan. Then the saved design budget
estimate, design changes and loss caused by design service was respectively in accordance with
NA ~ (0,137742 ) , NC ~ (0,3182 ) , N D ~ (0, 2552 ) .The utility function and probability weighting was
= 0.88 , = 0.61 when getting profits.
Solution of Contractor's Loss Utility
The effort costs of the saved design budget estimate, design changes and loss caused by design
x x x
service was respectively represented as L A = 9.66tan , L C = 2.1tan , L D = 2.1tan
58400 1580 1230

203
.The utility function and probability weighting was = = 0.88 , = 2.25 , = 0.61 = 0.69 when
suffering loss.
Solution of the Positive Coefficient
In the current engineering design fee standards, design fee charged base on design budgetary
estimate. According to the experience of similar projects in the past, when the scale of thermal
power engineering for 2 600MW, design budgetary estimate was commonly between 4 billion
yuan and 6 billion yuan. According to schedule 1 of chapter 9 of the engineering survey and design
fee standards manual, using interpolation method, the design fee was:

11897.5 - 8276.7 1.8

S= ( C - 400000 ) = (C - 200000) (13)
600000 - 400000 100

It can be seen from this formula that toll coefficient of the design fee was 1.8%. Therefore, in
order to guarantee the incentive effect, incentive coefficient should be at least 1.8%. The incentive
coefficient was determined by the prospect theory when U A = U L A , and compared with other
scholars using expected utility theory [14], contrast diagram of incentive coefficient of budgetary
estimate index was shown in figure 5.

5.00%

0.00%
0 7300 14600 21900 29200

Incentive coefficient of Prospect theory

Incentive coefficient of Expectancy theory

Figure 5. The contrast figure of design budgetary estimate indicators incentive coefficient.

It can be seen from figure 5 that when the saved budget amount was less than 219 million yuan,
the incentive coefficient of prospect theory was less than that of expected utility theory. The owner
at this stage can take advantage of less incentive amount relative to the expected utility theory to
meet the psychological utility of contractors. When the saved budget amount was more than 219
million yuan, the incentive coefficient of prospect theory was more than that of expected utility
theory.
The contrast diagram of incentive coefficient of reliable technical indicator and design service
indicator were shown in figure 6 and figure 7.

30.00%
20.00%
10.00%
0.00%
0 140 280 420 560

Incentive coefficient of Prospect theory

Incentive coefficient of Expectancy theory

Figure 6. The contrast figure of reliable technology indicators incentive coefficient.

204
 30.00%
20.00%
10.00%
0.00%
0 120 240 360 480

Incentive coefficient of Prospect theory

Incentive coefficient of Expectancy theory

Figure 7. The contrast figure of design service indicators incentive coefficient.

Solution of the Design Schedule Incentive Coefficient

In the contract, the owner can explicit the duration of the contractor to complete the design
drawings. When construction drawings of single items of projects delayed delivery per 10 days,
one-thousandth of the basic design fee receivable was punished. When the delay exceeded 30 days,
punishment was doubled. Penalty amount was represented by the following.

S = - 0.1%SiB
( Bi - BiB ) Bi - BiB 30 (14)
i=1 10

S = - 0.1%SiB
( Bi - BiB ) Bi - BiB 30 (15)
i=1 10

B iB design schedule of the ith unit project as the owner required

Bi the actual schedule of the ith unit project for the delivery of the drawings from the
designer
SiB The basic design fee of the ith unit project.

Conclusion
In this paper, prospect theory was used to analyze the four main indicators of the design phase.
Psychological effects of the contractors were given full consideration to establish the corresponding
incentive model. By an example, each incentive coefficient of the design contractor was calculated
and the dynamic incentive coefficient curve was obtained, reaching dynamic and active
management for the owner on incentive. Through this research, the owner can control contractor's
incentive actively according to their own requirements and contractor's actual situation, prompting
the contractor to reach the owner's demand as much as possible.

References
[1] Ren Z, Anumba C, Tah J. RFID-facilitated construction materials management (RFID-CMM) -
A case study of water-supply project [J]. Advanced Engineering Informatics, 2011, 25(2): 198-207.
[2] Yi Tao, Lu Gongshu. The incentives to the contractor based on the engineering cost and time
limit [J]. Systems Engineering, 2010, 28(1): 123-126.
[3] Schttle Annett, Gehbauer Fritz. Incentive systems to support collaboration in construction
projects [J]. IGLC 2012 - 20th Conference of the International Group for Lean Construction, 2012.

205
[4] Booij AS, van de Kuilen G. A parameter-free analysis of the utility of money for the general
population under prospect theory [J]. Journal of Economic Psychology, 2009, 30 (4): 651-666.
[5] Cox JC, Sadiraj V, Schmidt U. Asymmetrically Dominated Choice Problems, the Isolation
Hypothesis and Random Incentive Mechanisms [J]. Plos One, 2014, 9 (3).
[6] Yi Tao, Xiao Chengchen, Xiao Gong. The research of the design contractor's incentive
management for owner [J]. 2010 International Conference on Management and Service Science,
2010.
[7] Chen Siyuan. The design of contract Based on the maximum profit of cost plus incentive fee
[J]. Journal of Yangtze University (Nat Sci Edit) 2010, 7(1): 314-316+392.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on Sino-US Trade Friction Problem

Zhen LI
International School, ZiBo Vocational Institute, ZiBo, Shandong, China
zblz230@126.com

Keywords: Sino-US Trade, Conflicts Trade, Barriers Renminbi, Exchange Rate, Principle of Source
Area

Abstract: The Sino-US trade has significantly progressed since the diplomatic relations were
established between the Peoples Republic of China and the United States of America. Nevertheless,
as the rapid development of the economy of China over the years, more trade conflicts between the
two countries are standing out. In particular, the economy of the US is at a low ebb as a result of the
sub-prime crisis. Therefore, new characteristics emerge in the Sino-US trade conflicts. Under such
circumstances, how will the government and the enterprises react? The essay hereof gives special
analysis on the new characteristics in Sino-US trade conflicts, and puts forward reasonable
suggestions on how to deal with the conflicts.
As the world's largest developing country and largest developed country, China and the United
States are both important trade and investment partner, which plays an important role to the
economic globalization and trade liberalization process, so the economic and trade relations
between the two countries have been impressive. After the normalization of Sino-US relations, trade
relations between the two countries have come into a period of rapid development. With the growth
of international trade, the trade friction between the two countries are developing continuously and
steadily.

The Review of Sino-US Trade

In January 1979, China and America established the diplomatic ties and in July of the same year
the two governments signed the agreement on Sino-US trade relations so that the development of
china-us economic and trade exchanges increased rapidly.
The Rapid Development of Bilateral Trade
With the deepening of China's reform and opening up, Sino-US trade volume rapidly has been
ascended. The data showed that Sino-US trade volume was $2.46 billion in 1979. According to
statistics issued on February 11, 2011 from the ministry of commerce, from December1to12, 2010,
the Sino-US trade in goods reached $456.82 billion, up 24.86% from a year earlier, including the
U.S. exporting to China $91.78 billion, an increase of 32.2% and being exported from China
$364.94 billion, an increase of 23.14%. America's trade deficit with China went up to $273.07
billion, up 20.36% from a year earlier, which has increased by 188 times in 30 years. The two
countries occupy the important position in the other's foreign trade. The data from China's ministry
of commerce showed that China is America's second largest trading partner, but China is the fastest
growing markets overseas.
The bilateral trade volume grows and at the same time the trade structure of China and the United
States there has been a qualitative change. Gradually since the 1980s the textile has exported from
China to the United States and light industry products have been changed into communications
products and high class products. The imports from China to the United States also shift from
agricultural to machine technology.
Sino-US Trade Friction
Because of the domestic political issues and the trade protectionism in the United States, the
normal economic and trade relations between China and the United States were affected by a lot

207
and the trade friction has been growing. From 1979 to 1979, the anti-dumping from the United
States and implementing the quota restrictions mainly involved textiles and some industrial
products. 2000 years later, the number of anti-dumping has increased year by year and the textile,
light industry and other fields gradually spread to the chemical industry, steel, mechanical and
electrical and hi-tech products. After the entry of WTO, the request that United States asked for
China's expanded to the intellectual property rights, law enforcement, government procurement, life
science and technology products market access, insurance and telecommunications market access,
subsidies, and many other fields. Sino-US trade friction is rising from pure trade the level of the
whole economic structure, such as China's market economy status, the issue of RMB exchange rate
and labor issues. Especially after the subprime crisis in 2008, the trade protectionism of the western
countries under the US-led looked up. In September 2009, Obama approved they would import to
China's all the light vehicle and car tires in 4% of the regular duties, a 35%, 25% and 35%
respectively on the basis of punitive tariffs in the next three years, involving a value of $2.2 billion
on impact of employment of China's 100000 people. Since the tire safeguard case, industrial acid,
chicken and other import duties that were imported from the United States to China were imposed
on or taken trade restrictions, at the same time the United States began to deal with domestic
accusations of other "dumping" commodities to China. According to the data from China's ministry
of commerce official, from January 1, 2010 to December 31, 2010, international trade commission
of the United States initiated a total of 58, 337cases, including 19 investigations by the prosecution
involving Chinese companies, a third of the total number of investigations. The trade commission of
the United States launched a total 337 survey and marking cases have reached a record high. The
characteristics of 19 cases: the patent infringement lawsuit; mechanical and electrical products for
the most part, such as dynamic random access memory, display devices, semiconductor integrated
circuit chips, and inkjet cartridges, etc, most of which involved foreign investment enterprises in
China.

Sino-US Trade Friction Characteristics

The Frequency Increase of Sino-US Trade Friction
The Sino-US trade survey were 14 in 2009 and 19 in 2010, and by the end of April 2010, the
Commerce Department has launched an investigation into Chinese companies or ruling 13, which
showed the frequency of the Sino-US trade friction increasing.
The Strong Increase of Sino-US Trade Friction
With the frequency of trade protection growing, the punitive tariffs on case amount and scope
that the United States imposed to China's export products increased, too. In November, 2009, the
punitive tariffs limit reached 43.8% from the U.S. department of commerce on imports of metal
wire mesh pallet to China. By the end of 2009 the US international trade commission got the
approval to import about $2.74 billion to Chinese well tube worth 10.3% to 15.78% duties, reaching
the largest amount trade sanctions on China finally.
The Legislation Introduced Gradually in Dollar against Renmibi
The objective factors of Renminbi appreciation rising mostly depends on China's
trade surplus and huge foreign exchange reserves, etc. According to statistics, in 2001-2009 China's
trade surplus with the US continued to expand, the surplus was 280.8, 427.08, 586.13, 802.69,
1141.74, 1442.63, 1633.25, 1708.57, 1433.73 (billions of dollars) in turn. In 2008 China's exports to
the United States trade surplus reached a maximum $1708.57. In 2008 under the influence of the
financial crisis, the trade exports from the United States to China's fell, even grew negatively. As far
as March 2011 our country had the largest foreign exchange reaching $2.8473 trillion, becoming the
world's largest foreign exchange reserves. At present, the indicators of China's foreign exchange
reserves are much higher than the international warning line. Some of the domestic empirical study
shows that the increase of China's foreign exchange reserves in the long term will impact on

208
Renminbis nominal and effective exchange rate, making Renminbi facing upward the pressure for
a long time.
Because of the huge trade deficit between the United States and China, and high unemployment in
the United States, the United States put pressure on our government in order to maintain its financial
supremacy for the higher the Chinese currency against the dollar, which mainly manifested the
following three points: Firstly, the United States congress put forward legislation in China constantly;
Secondly, industry put pressure on China through the trade alliance; Thirdly, American government
put pressure on China with the help of the international multilateral financial institution.
On September 29, 2010, the House of Representatives of U.S. passed the currency reform to
promote fair trade act, which demands the government fundamentally undervalued the country's
currency against the dollar in 18 months for a certain export to make decision based on the specific
requirements. Relevant government departments import of relevant countries countervailing or
anti-dumping duties to offset "deviation" and make a positive final determination for importing
countervailing or anti-dumping duties from relevant countries.
More Diverse Trade Barriers from the United States to China
Although the United States has been pressing to China for the appreciation of the Renminbi,
which could not rise sharply in a short period of time because the Renminbi has applied floating
exchange rate regime based on market demand. The U.S. strengthened the unilateral trade barriers
and forced the yuan to rise at the same time. At present The building trade barriers made by the
United States are more and more diversified: Under the conventional tariff barriers with the
international trade liberalization trend gradually reducing, non-tariff barriers constitute a complex
and powerful group of trade barrier to trade all on the stages, such as the trade remedy measures,
technical standards, environmental standards, labor standards, and "special section 301
investigation" and "section 337 investigation".
The Content of Sino-US Trade Friction Upgrade
With development of science and technology of China continuously, the technical levels of
Chinese products are gradually improving, the focus of Sino-US trade friction have been changed
from the original textile, light industry products upgraded to labor capital intensive industries.
Although, the U.S. trade deficit with China continue to improve in recent years, in the field of
science and technology, the trade between the US and China has been a surplus due to its high-tech
added value, this part of which is profitable. As a result, the United States will strengthen this part
of the degree of protection to reverse its high in the Sino-US trade deficit. But industry structure of
China has been upgrading gradually, which is a transform from made in China to created in
China, China has achieved remarkable results, especially in the field of the new energy, new
materials, photovoltaic (pv) etc, communications and other fields to make the similar products is
much cheaper. So the United States strengthened the protection of the trade and paid more attention
to the protection of intellectual property rights.

Chinas Strategies to Deal with the Sino-US Trade Friction

Adhering to the Stability of RMB Exchange Rate and Taking Measures to Ease the Pressure
of RMB Appreciation.
China should adhere to the established monetary policy and cant compromise under external
pressure. Meanwhile, in order to alleviate the pressure of RMB appreciation, the export tax rebates
needs to phase out to alleviate the current-account surplus pressure; Domestic demand should be
developed and the dependence on foreign trade ought to be reduced; The Chinese government shall
implement the trade policy of leading import by export and promoting export by import in order to
expand import from the United States; Accelerating the construction of RMB forward exchange
market and publicizing the exchange rate risk to enterprises, improving the efficiency of financial
derivatives; Completing the formation mechanism of RMB exchange rate based on floating

209
exchange rate system which is on the basis of basket currencies, improving the regulation art of
micro, two-way, steady climb, enlarging the floating range, adjusting the exchange rate to balance
through market mechanism together with other policies.
Strengthening the Going Out Strategy to Promote Direct Investment in the United States.
The direct investment in the United States can avoid trade barriers and reduce Chinas trade
surplus with the United states. The United States, with sound investment environment, highly
developed market, perfect macro regulation, optimizing infrastructure construction, stable political
environment, advanced technology, high-quality labor, progressive management thoughts, plenty
and perfect government policy, is a suitable place for the investment of Chinese enterprises.
Thus, the government can support enterprises in the following ways: guide them in policy,
support them in the capital and leave them convenience in foreign exchange management. For the
enterprises, especially the trade, financial and industrial enterprises which invested in the U.S, can
take advantage of the preferential policies and go abroad at appropriate time. They can make direct
investment to American manufacturing industry, high-tech industry, resource industry, service
industry and wholesale trade by means of mergers and acquisitions etc.
Avoiding the Rules of Origin Through Intermediary Trade in the Free Trade Area.
The rules of origin is to determine the nationality of goodswhich is the source area of goods.
A country usually implement different policies on import goods of various nationality, such as
quotas, licenses and quantitative restrictions. Therefore, rules of origin is a policy problem with
enormous economic benefits behind rather than simply technical problem. With the rapid
development of economic globalization, the nationality of product is blurred day by day. However,
as all countries implement different treatments to the goods with diverse nationalities, the rules of
origin has become an important part of a countrys economic and trade policies, which is widely
applied in technology transfer, industrial upgrading, domestic demand stimulation, inspection and
quarantine measures, most-favored-nation treatment, national quotas, anti-dumping and anti
-subsidy measures, safeguard measures, government procurement, trade statistics, GSP country and
various preferential trade agreements, etc.
Free trade zone is set up between the countries which are mutually agreed to eradicate tariff and
non-tariff trade barriers. For the enterprises, they can take advantage of rules of origin and set up
factories to the most underdeveloped countries actively. They can also get benefits from GSP
treatment, NAFTA preferential treatment, taking quota initiatively and bypassing the U.S. quota
restrictions, which help enterprises avoid the trade barriers designed by the United States.
Implementing Effective Government Public Relations Strategy, Strengthening High-Level
Visits and Resolving the Sino-US Trade Disputes by Consultations.
The high-level political talks is an important basis for the stable and healthy development of
Sino-US relations. Currently, maintaining and increasing the meetings of senior officials of the two
countries plays an important role to strengthen mutual understanding of each others policies and
reduce antagonism from the US towards China.
A long-term and regular mechanism needs to be established between China and the United States
to explore the problems between the two countries and properly handle the economic and trade
relations.
Accelerating the Adjustment of Industrial Structure and Enhancing the Core
Competitiveness of Products.
The Chinese government shall make corresponding policies to support and promote the
development of high-tech industry and create a beneficial political, social and economic
environment. Also, advanced technology can be used to upgrade traditional industries so as to make
our country get rid of the humble position in international labor market with low added value. The
Chinese government shall promote the traditional industries transform to high-level and high-tech
industry constantly, as well as reduce the trade friction with other countries.
210
References
[1] Ministry of Commerce of the Peoples Republic of China Bureau of Fair Trade
http://gpj.mofcom.gov.cn/
[2] State Administration of Foreign Exchange http://www.safe.gov.cn/model_safe/index.html
[3] Li Bo & Tu Xinquan, Strategies for the Increasing Conflicts in the Sino-US Trade [J].
Macroeconomic Study, August 2005.
[4] Miao Yingchun, Research into the Conflicts in the Economy and Trade between China and the
US [M]. Wuhan University Press, pp. 5659, 2009.
[5] Mengqi & Wang Feibo. A Study of Relationship between Exchange Rate and the Imbalanced
Sino-US Trade. Issues of International Trade, November, 2009.
[6] Ding Changying. Enterprises Should Abide by the Principle of Source Area. China Customs
June, 2006.
[7] Website of China Free Trade Area: http://fta.mofcom.gov.cn/index.shtml

211
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Application and Research of Electronic Commerce in the Centralized

Procurement of Large State-Owned Enterprises

Lang LUO1,a,*, Yao LIU1,b, Tao HU1,c

1
Beijing University of Posts and Telecommunications, Haidian District, Beijing 100876, China
a
luolang0111@163.com, bliuyao95@126.com, chutao666@vip.sina.com
* Corresponding author

Keywords: Component, Formatting, Style Electronic Commerce, State-owned Enterprises;

Centralized Procurement; Procurement Platform.

Abstract. With today's rapid development of Internet and computer technology, the development of
the world economy must tend to be the trend of the economic information and networking, and at this
time, electronic commerce based on the Internet came into being. In view of the practices of electronic
commerce in the procurement aspect being currently more popular in the large state-owned
enterprises, this paper mainly focuses on the application of electronic commerce in the centralized
procurement of state-owned enterprises. This paper first introduces the centralized procurement mode
and characteristics of electronic commerce, analyses the present situation of the application of the
existing electronic commerce procurement, and based on this, makes a specific analysis and research
of e-procurement platform construction and application, and finally discusses the trend of the
application of e-commerce in terms of the procurement.

Introduction
In the present society, the rapid development of IT technology and Internet technology have
changed the way of information processing, and have promoted the development of e-commerce. The
e-commerce has changed the operational model of the traditional enterprises, that is, the enterprise
supply chain management can be combined with e-commerce together, with the means of this
information technology to solve the problems which existed in the past Enterprise procurement, so
that it gained the favor of more and more enterprises. The e-commerce procurement system can
obviously reduce the costs, enhance the rate of return on the investment, shorten the production cycle,
and improve the enterprise's procurement management and supply chain management. Therefore, the
information foundation of more and more enterprises is becoming solid, and the electronic commerce
construction is necessary and feasible.
The Characteristics of Centralized Procurement of Electronic Commerce
The electronic commerce generally refers to the use of computer, network and information
technology to carry out business activities. From a broad perspective, the electronic commerce is
often considered as the electronic business activities, that is to say, it is referred to as the business
activity through all the electronic information technology, including external and internal business
activities of enterprises; in a narrow sense, it can be understood as the trading activity of goods and
services which are carried out by means of the electronic information technology including Internet.
For example, the official definition was given in the Blue Book of Electronic Commerce of China
released in 2001: the electronic commerce refers to the business transaction completed though
Internet. The electronic commerce discussed in this article refers to electronic commerce from a broad
perspective.
The electronic commerce technology of procurement refers to online purchasing (online
procurement), and it refers to any technology by which the enterprise or government organizations
obtain goods through the Internet. It pays more attention to automation processes, organizational
212
purchasing power and opportunities for goods through the Internet. [1] It can be regarded as the
e-commerce solutions established through the Internet in order to promote and integrate purchasing
activities between purchasers and suppliers, so that it makes the whole activity streamlined and
greatly improves the application of the technology. [2] The electronic commerce system of
procurement is the perfect combination of e-commerce technology, procurement behaviors and
procurement management, which can be used to solve the problems of traditional procurement work.
The procurement method of the electronic commerce can be understood as the online procurement,
which can be performed in the environment of e-commerce, and the basic process is to establish
e-commerce platforms, networks on the bidding and contract management. [3]

Research and Application of Electronic Commerce

Development situation
In recent years, the small, medium-sized and large enterprises apply the electronic commerce very
actively, and many enterprises establish their websites and carry out online transactions because
e-commerce can make multi-channel complex commodity trading become fast, simple and reduce
transaction cost, simplify transaction process and improve the efficiency. [4]
The existing procurement models of each industry include the traditional procurement mode and
the electronic commerce model of procurement. Among them, the procurement mode of electronic
commercialization is divided into two kinds: the procurement platform established by enterprises
themselves and the e-commerce platform of the third party. The procurement platforms established by
enterprises themselves mainly serve for their own procurement so that it makes the procurement open,
transparent and efficient, improving the procurement efficiency and reducing the procurement cost.
The e-commerce platforms of the third party serve for the purchasing enterprises and suppliers such
platforms as JingDongs ZhiCai, HuiCai and YunCai" and Alibaba 1688 procurement platform.
In large enterprises, the procurement is an important part of the cost control of the entire enterprise,
which ensures the production and development of the enterprise, and has a direct influence on the
benefits of the whole enterprise. Therefore, it is necessary to implement the electronic commerce,
which can reduce the purchasing cost and also facilitate the control of an enterprise group.
The groups of large central enterprises first tried to carry out the electronic commerce in the
procurement aspect. (1) In 2000, China Petroleum proposed the conception of electronic
procurement, including strategic procurement, procurement process and technological environment
of e-procurement. In 2010, China petroleum implemented the electronic procurement of the second
generation. This implementation established a complete operation system for the procurement
business, which was concerned about three aspects such as operation, management and
decision-making. The procurement system takes the procurement and supply chain as the main line,
which involves plan, bidding, contract, storage and logistics and etc. The operation system includes
material, quality, price, management of suppliers and so on. (2) In 2010, the National Grid
Corporation began to proceed with the establishment of e-commerce platform (ECP), in order to
achieve the electronic procurement process. The platform connected the SoTower platform of the
independent development with Ariba software to meet the demand of the intensive and electronic
procurement for overall supplies of the Nation Grid Corporation. (3) China Nuclear Industry
Construction Corporation has also initially realized the information management of bulk materials
and the centralized procurement of key materials. (4) Shandong Coal Mine Machinery Equipment
Co., Ltd. has two e-procurement solutions: the one is to use their own procurement website, and the
other is to use the procurement network of the third party. According to the roles of different users and
business permissions, they can read the website information, inquiry, quoted price and comparative
price in order to carry out the related procurement operations, and according to roles and permissions,
the website information among different roles should be strictly kept secret. (5) Baosteel Group has

213
also independently developed an electronic procurement platform called Procurement Treasure of
specialization and sharing for manufacturing oriented enterprises.
Function Analysis
The basic functions of an E-commerce procurement platform include inquiry, order, category
management and the whole procurement process of logistics and distribution which is completed to
collaborate with suppliers. [5] The clients the platform faces include: enterprise procurement
organizations, social purchasers, suppliers, service providers and operators of the third party. The
main functional requirements include three aspects: bidding platform, online payment and big data
analysis.
The procurement platform can be divided into three layers: business layer, operation layer and
management layer, and the most important is the business layer. The specific module design is
divided into the following:

Analysis of Application
The electronic commerce platform of procurement needs to be integrated with their other internal
systems. There are mainly four items of work: The basic work is the master data management, which
needs to be integrated with the existing master data management system of the group; secondly, it
needs to be integrated with project management system, document integration system and so on in
order to complete the information process including the relative project planning book and bidding
book etc.; thirdly, it needs to be integrated with the contract management system, in order to complete
the various elements of the procurement contract; finally, it is necessary to integrate with the central
business system of the internal finance of a group so as to complete the payment of the funds.
The electronic commerce platform of procurement needs to be integrated with the external systems.
It involves four aspects: The first is the bank E-commerce platform used for financing of the supply
chain; the second is the tendering and bidding platforms, such as China Procurement and Tendering
Network, China International Bidding Network, the National Public Service Platform, the National
Administrative Supervision Platform used to obtain bidding information; the third is the logistics
system of the third party used to obtain the logistics information; the last is the payment platform of
the third party, which is applied for the payment by the procurement platform, and then the paid
results can be obtained.
The electronic commerce platform of procurement is accessible to the internal procurement
operation and the external suppliers. Through the information dissemination and coordination
management, it can improve the work efficiency, unify the procurement processes and channels, and
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it can strengthen the unified management of the suppliers so as to realize the unified management of
price, quality, product and evaluation for the suppliers.
The electronic commerce platform of procurement is used to improve efficiency and to enhance the
control force in the following nine aspects:
(1) Procurement demand and plan: through the information means, collect the material demand and
plan of various secondary companies and third class companies, and carry out the centralized
management. Through the use of information systems, simplify the work of data collection, and
through the timely report of the procurement plan, control the procurement and improve the accuracy
of the group procurement budget.
(2) Source searching management: the main ways of procurement are the tender, the price of the
consultation, bidding, a single source and the supermarket.
(3) Contract management: It performs the management of the elements of the contract signed with
the supplier to ensure the implementation of the framework agreement.
(4) Procurement execution: It manages and controls the internal procurement schedule for the
group, and at the same time it can be integrated with other management systems of the group to form
a collaborative management model.
(5) Procurement process control: It establishes the evaluation system of the procurement process,
and carries out the evaluation and control of the suppliers and product information in the procurement
process, and makes the timely detection of risk points in the procurement process, so that they can be
managed and controlled.
(6) Quality management: Draw up quality standards, and check and accept the materials in
accordance with the standards and problem handling.
(7) Category management: the procurement classification is divided into procurement
classification, procurement category spending, category positioning, supply market analysis and other
basic work.
(8) Management of suppliers: Unify the management of suppliers and establish the database of
suppliers, which can well maintain their own supplier resources, and according to the different
management requirements of enterprises, carry out scientific classification and grading work for
suppliers, formulate the corresponding supplier management strategy. Establish the feasible
mechanism of supplier selection, rewards and punishments, in order to select the suppliers of high
quality constantly, to improve the level of procurement of the whole group, and to achieve the mutual
reciprocity and benefit with suppliers.
(9) Management of experts: Establish the expert database within and outside the group. Through
the information of the expert database, learn the expert information. In the bidding process, select the
appropriate experts according to the actual situation, in order to enhance the bidding quality of the
enterprise and to reduce the purchase risk.
The group can carry out the top-level design, plan, deployment and implementation in a unified
way. According to the business characteristics of each section, it should complete business research
carefully and analyze the differences of each section, and give the corresponding solutions. In
addition, the system application takes the business circulation as the central part, in order to ensure
that the existing business remains the same, so it gives full consideration to the demands of the future
development of the group and set aside the enhanced and optimized space. The electronic commerce
platform of procurement is accessible to the enterprises for the whole group, but the key enterprises
should be selected prior to the implementation, and finally it can achieve the wide coverage of the
enterprises within the group, involving the full coverage of the categories and suppliers.
Trend of Electronic Commerce of Procurement
The first is the specialization of the procurement market. The development methods of the
enterprise procurement will gradually become the ways of Internet based and electronic commerce,
and the procurement ways will develop from the integrated business platform to the specialized
procurement business platform. The bulk industrial products will gradually form a number of vertical

215
specialized markets, such as iron and steel, coal, machinery and equipment, and provide financial,
logistics, information and other value-added services; the supermarket procurement of supplies
gradually will provide one-stop electronic business platform of industrial products in a similar B2C
way of the customer category by means of the convenient purchasing, fair and transparent prices,
faster logistics services and complete after-sales service.
The second is the disintermediation of procurement process. The electronic commerce platform of
procurement tries to eliminate the problem of asymmetric information between suppliers and
enterprise users as far as possible, in order to remove intermediary agencies such as distributors,
agents, retailers and so on gradually, even the procurement personnel's role in the procurement
process of some industrial products of supermarkets will be disappeared or weakened.
The third is the openness of bidding and tendering. With the implementation of the Electronic
Bidding and Tendering System, the supervision of bidding and tendering of the government and
enterprises will gradually be strengthened. The information of the whole process of the transaction
including bidding announcement, prequalification announcement, bidding documents, bid opening
records, publicity of the candidate for winning the bid, winning results, contract signing and
performance is required to comply with the requirements open to the whole society.
Fourthly, whether the bulk of industrial products or the supermarket procurement of materials take
on a trend of the whole process of online transaction. Matching of supply and demand information,
matching of procurement sourcing, contract signature, process tracking, logistics and distribution,
payment and settlement all are completed through the online way so as to realize the integration of
commodity circulation, information flow, capital flow, logistics and services.
The fifth is the opening of the platform system. The platform markets and the proprietary markets
will be gradually open to the third party payment, financial institutions, logistics enterprises, credit
agencies and other service enterprises. Bases on the large data, construct the ecosphere of electronic
commerce taking its own as the core.

Conclusion
With the rapid development of Internet technology, the electronic commerce has been widely used.
It adapts to meet the demand of the latest economic development at the same time, and it promotes the
development of the enterprise itself, especially the development of the supply chain, and it can also
effectively enhance the competitiveness of enterprises. The electronic commerce can greatly reduce
the procurement costs of enterprises, through e-commerce platform, and it can avoid cumbersome
procedures and offsets of the traditional procurement so that it can form the integrated information
system, and strengthen the management of suppliers. The electronic commerce platform can run for
7*24 hours, so it can reduce the loss, improve the service and increase trading opportunities. The
electronic commerce platform of procurement needs to establish and improve the procurement
management system, including the means of purchasing, executive mechanism and management
means of procurement, which can prevent corruption, and therefore may suffer some resistance. The
central position of a large state-owned enterprise in the whole supply chain is very prominent, and
now they take the lead in carrying out the electronic commerce practice in the procurement links so
that this can drive the rapid development of electronic commerce in the whole supply chain.

References
[1] Antonio Davila, Mahendra Gupta, Richard J. Palmer. Moving procurement systems to the
Internet: The adoption and use of e-procurement technology models [J]. European Management
Journal, 2003, 21(1):11-23.
[2] Deepak Shikarpur. Adavances in e-procurement [R]. Express Computer, 2003.
[3] Wang, Danyang. Research on the establishment of electronic commerce procurement system in
large iron and steel enterprises. [D]. Maritime Affairs University of Dalian, 2013.
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[4] Yao, Guozhang. Electronic Commerce and Enterprise Management [M]. Peking University
Press, 2002.
[5] Li, Yao & Li, Mingyan. The development and case study of electronic procurement in Chinese
Enterprises[C]. Proceedings of the Symposium on modern industrial engineering and management,
2006.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Analysis for Cost Leadership Strategy and Core Competitiveness

Points of IKEA CO.

Jin-Yuan YUAN1,a, Miao WANG2,b, Xiao-Ming YUAN3,c,*

1
Business College, Northeast Normal University, Changchun, 130117, China
2,3
Institute of Engineering Mechanics, China Earthquake Administration, Harbin 150080, China
2,3
Key Laboratory of Earthquake Engineering and Engineering Vibration of China
Earthquake Administration;
a
tlcatd@163.com, bjyllwm1990@126.com, cyxmiem@163.com
*Corresponding author

Keywords: IKEA CO.; Recent Achievement; Cost Leadership Strategy; The IKEA Effect; Core
Competitiveness.

Abstract. The achievement of IKEA CO. is a typical case of the cost leadership strategy, the study of
which will play an important part in the development of Chinas retail industry. The paper shows the
outstanding achievement of IKEA in recent years and dissects the main points and the effect of cost
leadership strategy through investigation. The results of analysis indicate that although it has been
sixty years since the establishment of IKEA CO., the company still maintains sound development
momentum in recent five years. The characteristic strategies of IKEA CO. mainly include four
factors: design method modularization and standardization; differentiation design and Swedish
design style; limited service and experiential marketing; global production management and logistics
system. And the concept of design modularization has led the occurrence of the IKEA effect. There
are three methods to reduce the transportation and storage cost: production modularization and
standardization to cut the storage cost; global production management and logistics system to reduce
the production cost; offering customers limited service to decrease the labor cost. There are three
methods to improve the core competitiveness of IKEA CO.: design differentiation to satisfy the
different demand of customers; Swedish design style to strengthen the brand effect; experiential
marketing and brochures advertisement to promote customers satisfaction.

Introduction
IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden. IKEA CO., ran the
mail-order business of stationery in the beginning, has been gradually developing into an international
home products company. Since 2003, IKEA CO. has been the world's largest furniture retailer who
owns 180 retail chain stores selling thousands of series of products to 43 countries and regions all
around the world.
Adhering to the idea of help more people live a better life at home [1], IKEA CO. insists on the
guide line of providing home furnishings of excellent design, complete function and low price. At
present, IKEA CO. has become the model focuses on cost leadership strategy with excellent design,
outstanding strategies making and effective products and services. [1]
Compared with real estate, home furnishing is only a small industry. However, compared with the
other industries, home furnishing is a huge industry. At present, most home furnishing companies
produce high quality products at high price or produce common quality products at low price.
Nevertheless, IKEA CO. produces high quality products at low price because of the competitive cost
savings methods. Thus, the study of IKEA CO. cost leadership strategy, concept, marketing mode and
core competitiveness will have a significant effect on the foundation and development of modern
industries.
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Recent Achievement
In 2002, IKEA CO. was named one of the 50 Best Global Brands. In 2005, the brand value of IKEA
CO. reached 7,817 billion dollars.
Based on the official data published by IKEA CO., the variation tendency of IKEA CO. annual total
sales in recent six years (2010-2015) is shown in Fig. 1: the annual total sales keep rising; the average
of annual total sales is about 27.0 billion euros; the average annual growth rate is about 7.4%.
According to modern economic theories, for retailing, the average annual growth rate at the scope of
3% to 5% means the companys annual total sales grows fast. So the annual total sales of IKEA CO.
grow fast in recent six years. In fiscal 2015, the annual total sales of IKEA CO. already reached 31.9
billion euros and the net income was 3.5 billion euros.

34
Total sales / billion euro

32
30
28
26
24
22
2010 2011 2012 2013 2014 2015

Data are from IKEA CO. official website.

Figure 1. The variation tendency of IKEA CO. annual total sales in recent six years (2010-2015).

The report Global Powers of Retailing 2015: Embracing Innovation published by Deloitte
Touche Tohmatsu Limited and STORES Media identifies:, the Top 250 Global Powers of Retailing
generated retail average revenue more than 17.4 billion U.S. dollars (about 15.5 billion euros) for
fiscal 2013, and sales-weighted, currency-adjusted retail revenue increased 4.1 percent in 2013for the
Top 250. The data in the report above and the Fig. 1 show: in fiscal 2013, IKEA CO. generated retail
revenue 17.1 billion euros, which outdistanced that of the average of the Top 250; in fiscal 2015,
IKEA CO. annual growth rate was about 11.2% outdistanced the Top 250 average annual growth rate
4.1%, which indicates IKEA CO. is developing strong recently. So far, IKEA CO. also develops very
fast in China market. In fiscal 2015, China market is the largest procurement market in IKEA CO.
global markets, with about 25% share of IKEA CO. global market. For fiscal 2015, in China market,
IKEA CO. Annual total sales were about 10.5 billion RMB, with the annual growth rate of about 18%.
Cost Leadership Strategy
The cost leadership strategy is also called low cost strategy, though the theory was proposed long
before [3], every company should make their own innovation.
IKEA CO. has its own originality in both design and implementation of the cost leadership strategy.
For monitoring cost, to win the market competition, IKEA CO. develops three methods: furniture
design method modularization, limited service and global production management and logistics
system.
Furniture Design Method Modularization and the IKEA Effect. For cost saving, IKEA CO.
gives up the common method that the sellers assemble furniture for their customers and makes its own
modularized furniture design method: divide furniture into modules which are designed and produced
separately and easy to assemble. When customers buy IKEA furniture, they should assemble by
themselves. The more important point is the modules can be assembled into furniture of different
styles and different uses, which not only saves cost but also offers customers originality chances.

219
 IKEA CO. also creates the design concept of flat packaging. IKEA CO. furniture is designed the
packaging method detachable, folding and assembling, which saves the warehouse room, reduces the
transportation expenses, in other word saves the cost of transportation and storage.
At present, the sales model of IKEA CO. has been accepted widely and further creates a kind of
behavior psychology which is called the IKEA effect. Dan Ariely, US behavioral economist, along
with his colleagues, found self-assembly impacted the evaluation of a product by its consumers. In
other word, people like the furniture self-assembled better than the finished product furniture; people
tend to overvalue more the furniture that they pay more effort into. The substance of this phenomenon
is people will have dependence and pride to their own labor products. This limited service not only
saves cost, but also promote customers self-satisfaction. Besides, the products in IKEA CO. retail
stores are real, customers can touch and feel the products directly, which promotes customers
experience and saves selling cost.
Limited Service. Limited service can save cost for IKEA CO., mainly includes two aspects: when
customers buy IKEA CO. furniture, they should carry the furniture back and assemble by themselves;
in IKEA CO. stores, theres no sole duty shopping guide, but IKEA CO. offers experiential marketing
so that customers can learn and shop the products by themselves.
In addition, the difference from the other sellers is: IKEA CO. advertises their products not by
large-scale media, but by brochures which is much cheaper. The products brochures can be seen
everywhere in IKEA CO. stores. In the brochures, IKEA CO. products are introduced in detail and the
brochures editions are humanized designed so that customers can shop their goods conveniently.
IKEA CO. also advertises their products by animation movies shown in metro televisions, which is
more effective than the other fragmentary advertising methods [4].
Global Production Management and Logistics System. IKEA CO. products and their prices take
global integration strategy. IKEA CO. develops its own supplier selection methods: on the one hand,
appoint procurement team to every procurement areas; on the other hand, select different suppliers in
every procurement areas. By the methods above, the competition among suppliers can help control the
price. Besides, to avoid being subject to the suppliers, IKEA CO. pays attention to its products
designing copyright protection. IKEA CO. owns design patent of all its products so that it can be
unconstrained from suppliers.
When design stage, IKEA CO. starts selecting suitable suppliers and making cooperative partners
with them. To reduce the total cost which includes manufacture, logistics, tariff and relevant cost,
IKEA CO. develops strict admittance requirements to select the suppler who quotes the lowest total
price. IKEA CO. gives support to its suppliers to make long-term cooperative partners, so IKEA CO.
and its suppliers have close relationship. Thus, from the developing stage, suppliers can make full use
of their advantages to help IKEA CO. design and manufacture excellent products.
Core Competitiveness Points
Low cost is not the only survival secret, a well-developed company must have its own advantages
to form their core competitiveness so that the others are hard to copy.
Design Differentiation. Cost leadership is a competition advantage, but low cost products must be
provided by different competitive level. IKEA CO. products focus on differential design and IKEA
CO. owns special management ideas. IKEA CO. employs professional designers to design products to
well meet the customers different requirements. Meanwhile, IKEA CO. often communicates with
their customers to ask for comments and advices, which provides new thoughts for its future products
development and design. In addition, IKEA CO. takes its own design technology and brand for all the
products to ensure IKEA CO. at the core position and the whole value chain under firm control.
Swedish design Style. IKEA CO. takes the classical Swedish design style. So far, all the series of
products are designed in Sweden. In 1925, New York World Expo, the concept of Swedish Grace
was presented. Simple and practical, elegant and natural, ingenious and skillful became the
characteristics of Swedish design technology. Then the Swedish Elegant and Swedish Modern
appeared and won the worldwide praises. IKEA CO. products inherit and carry forward the Swedish

220
traditions: people oriented, not intentionally pursuing popularity but representing modern fashion,
rich variety but not similar, practical and beautiful, fresh and health. IKEA CO. products have become
the representative of Swedish lifestyle.
Experiential Marketing. As people living standard rise ceaselessly, customers have moved its
focus from the initial products quality and brand to current sensory stimulation and experience, and
customers pay more and more attention to the feeling of products. The experiential marketing is:
when shopping, customers are provided services of seeing, hearing, using, participating and other
methods to experience the products functional characteristics, then desire to purchase the products.
The experiential marketing takes customers desires as the main point, products as the carrier, service
as the assistant method, which shortens the cognitive distance between enterprises and customers.
IKEA CO. takes full advantage of the customers desires to experiential marketing, develops its own
marketing mode: in IKEA CO. stores, instead of specialized cabinets, the exhibition rooms are
decorated as the home style. Customers can feel and use the furniture directly to realize the
experiencing consumption freely and enjoy the immersed sense [5]. Unless customers need to know
more about the products, they will never be disturbed by salesmen.

Summary
1) IKEA CO. is a home products retailer attracting global attention, typical case of the cost
leadership strategy. Although IKEA CO. The analysis of the recent six years IKEA CO. achievement
indicates that although it has been sixty years since the establishment of IKEA CO., the company still
maintains sound development momentum.
2) IKEA CO. takes four characteristic strategies: design method modularization and
standardization; differentiation design and Swedish design style; limited service and experiential
marketing; global production management and logistics system.
3) IKEA CO. develops three methods to cut cost: production modularization to cut the storage cost;
global production management and logistics system, supporting and restricting suppliers to reduce the
production cost; offering customers limited service to decrease the labor cost.
4) IKEA CO. owns three core competitiveness advantages: design differentiation to satisfy the
different demand of customers; Swedish design style to strengthen the brand effect; experiential
marketing and brochures advertisement to promote customers satisfaction.

References
[1] Li Zhigang, Sun Xiumei, Zhang Xiao. Analysis of IKEA CO. Business Model[J].Enterprise
Management, 2010(10):34-35.
[2] Information on http://www.ikea.com/cn/zh/
[3] Philip Kotler, Gary Armstrong. Principles of Marketing[M], Prentice Hall, Upper Saddle River,
2009.
[4] Hu Xiaoya. Analysis of IKEA CO. shopping plaza marketing strategy-Wu Han IKEA CO. store
as an example. Modern Economic Information, 2015(16):128.
[5] Bo Qiying. Application of Experiential Marketing to Home furnishing market - IKEA CO. as an
example[J].Manager' Journal, 2014(26): 286.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Efficiency Mechanism of P2P in China

Based on Financial Function
Yun ZHOU
Beijing University of Posts and Telecommunications, China
13366037076@163.com

Keywords: Internet Finance, P2P Lending, Efficiency.

Abstract. Based on the data of Internet Finance, the paper analyzes the efficiency mechanism of
P2P lending from the aspect of financial function. Through comparing and analyzing the data
between the P2P lending platforms, combined with China's current economic situation, and
expounds the efficiency mechanism of P2P lending from five aspects, including market breadth,
market depth, capital utilization efficiency, information asymmetry and risk reducing. On this basis,
the current risks of P2P lending platform are summarized, relevant solutions are proposed.

Introduction
In March 2005, the establishment of British company Zopa marks the start of P2P lending
platform based on internet technology. In 2007, Chinas P2P lending platform began to emerge and
develop rapidly. In 2015, the turnover of P2P lending in China exceeded 1 trillion yuan, reached 1
trillion and 180 billion 565 million, an increase of 258.62%, the cumulative turnover 1 trillion and
631 billion 215 million history. Thus P2P shows a rapid growth and a wide popularity.
With the progress of computer technology, in recent years, Internet Finance has been developing
rapidly. P2P lending, the third party payment, big data and many financial business like this appear
to meet the need of the users , improve the operation efficiency and transparency of information,
reduce the transaction cost, and finally realize the social welfare maximization. On the other hand,
the Internet banking has some adverse effects, because there is no perfect regulatory system, there is
a big risk. P2P lending is a subclass of the Internet Finance, and it includes the advantages and
disadvantages of the above. As a new lending business, relevant analysis in this area is very limited,
so the research on the financial function and efficiency standards of P2P lending is very necessary.
In this paper, through the existing data and secondary data, the efficiency mechanism of P2P
lending in China is analyzed in five aspects, the scope of the market breadth and depth, the fund
usage efficiency, information asymmetry and reduces the risk. On this basis, the risk analysis of
P2P lending in China is put out, and then I put forward the corresponding settlement mechanism. I
hope this paper can make a contribution to the development of Chinas P2P lending.

Current Situation of Chinas P2P Lending

China's Internet Finance originated in the 1990's, the development process is shorter than the
European countries and America. Internet Finance is the combination of Internet technology and
financial functions. It is kind of financial industry based on big data and cloud computing. And it
has four advantages in terms of low cost, high efficiency, wide coverage and rapid development.
P2P lending is a sub category of Internet Finance which indicated the lending transaction between
the individual and the individual, generally need to use professional network platform to help
borrowers establish lending relationships and complete the relevant transaction procedures. The
borrowers can release lending information on the platform, including the amount, interest, time and
method of repayment, and decide on their own lending amount, to realize self borrowing process.
The investors are able to divide their funds into numerous parts so that they can invest more
borrowers with lower risk. China's P2P lending helps a large number of small and micro enterprises to
achieve the financing needs, and it also reduces investment risk, and makes idle funds available
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 P2P lending transaction model is mainly divided into three kinds: the offline transaction mode,
guaranteed online transaction mode and non-guaranteed online transaction mode [1]. The website of
the offline transaction mode only provides transaction related information, and the actual
transactions are carried out in lending institutions and borrowers and investors complete the
transaction face to face, the proceeds include agency fees, service charges and a significant
difference in interest rates, usually the interest rate differential can be more than 10%. Guaranteed
online transaction mode is a commitment to protect the principal of the transaction model, P2P
website will conduct a credit rating for funding needs of both parties, according to the credit rating
outcome to arrange transactions. Once the transaction default risk, P2P lending platform is
committed to advance principal for investors. At the same time, as there is no intermediary,
investor's rights more clearly, so they can get more revenue. Non-guaranteed online transaction
mode does not promise to protect the principal, both borrowers and investors conduct a transaction
through the P2P lending website, if there is a default risk, the platform does not advance the
principal [2]. Currently, the representative companies of these three modes are Credit Ease,
Peer-to-Peer lending and PPDAI.
Features of P2P lending include convenience, transparent and risk diversification. Investors and
borrowers will sign the loan contract after a transaction, and they have access to each other's
identity information, credit information. Investors can be informed of the repayment schedule in
time, they are free to choose the borrowers, so borrowers with higher Credit Rating can get loans in
a short time. At the same time, investors can divide fund into many parts, and provide a small
amount of loans with different borrowers, so as to reduce the risk of lending.
In the long run, P2P lending in China can help achieve Inclusive Finance [3], optimize the
allocation of resources, and improve the financing situation of small and micro businesses and
individuals.

Embodiment of Chinas P2P Efficiency Mechanism

Market Breadth
Since the establishment of the first P2P lending company called PPDAI in June 2007 in China,
the number of Chinese P2P lending company has trend of increasing every year, from 9(2010) to
3015(2015), as of February 2016, the cumulative number of P2P platforms reached 3944. At the
same time, the growth rate of P2P lending platform is positive, that is, from 2010 to the present, the
annual number of P2P lending platform showing an increasing trend.
3500

3000

2500

2000

1500

1000

500

0
2010 2011 2012 2013 2014 2015

P2P Platform Number

Figure 1. P2P lending platform number.

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 400

350

300

250

200

150

100

50

0
2010 2011 2012 2013 2014 2015

Growth Rate of P2P Platform

Figure 2. Growth rate of P2P lending platform.

Secondly, P2P lending scale is broader and more flexible, take the guaranteed online company
Peer-to-Peer Lending and non-guaranteed online company PPDAI for example, both companies
provide personal loans for 30 to 500,000 yuan, the minimum loan amount is relatively small, at the
same time, borrowers can choose the amount they plan to lend. But the minimum bank loans are
100,000 yuan, with strict requirements and pay high fees. Therefore, compared with the bank loans,
P2P lending can provide services to more customers. Bank loans are only accessible to large
enterprises with high credit rating, for small and micro businesses and individuals, there are no
proper small loans for them. But P2P lending service can meet the Financing needs of small and
micro businesses and individuals.

Table 1. Loan volume between P2P lending platforms and banks [CNY].
P2P Lending Bank
Yixin 10,000-1,000,000 CCB 100,000-1,000,000

Peer-to-Peer Lending 3,000-500,000 ICBC 100,000-30,000,000

PPDAI 3,000-500,000 BOC 300,000-10,000,000

Third, P2P lending transaction process is more efficient. The lending process is divided into five
steps: Client Application, Material Submission, Examination and Approval, Contract Signing and
Loan Payment [4]. Compared links in Client Application and Material Submission with the bank
lending, P2P lending with the advanced Internet technology is to build platforms online, customers
should submit application materials online, electronic tables are uesd instead of paper forms, which
eliminates the cost of materials and labor. In the process of Examination and Approval, offline
inspection and online inspection will be carried out at the same time, through big data to the largest
extent to ensure that the information is true and reliable. As for the process of Loan Payment, a P2P
lending platform adopts two-way selection, borrowers should publish lending information on the
platform, and investors choose investment projects freely, and this way can help reduce the
transaction cost.

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 Client Application
Material Submission
P2P lending
platform: apply
online
Examination and Approval
P2P lending
Bank:apply to the platform:Fill in the
electronic form on
Contract Signing
bank P2P lending
the Internet platform:
Loan Payment
Bank:Submit all Audit based on big
kinds of materials data and cloud
on the scence computing P2P lending
platform:
Bank:
Borrowers can
Audit by personnel choose the amount
based on credit of loan.
system
bank:
The loan amount is
specified.

Figure 3. Loan process.

Market Depth
The use of big data and cloud computing technology can help analyze massive data and improve
the discrimination information and pertinence, so as to tap the potential value, and expand the
market in depth.
Big data is divided into structured data and unstructured data, accounting for 15% and 85%,
respectively, these data exist in the field of social networking, Internet and electronic commerce,
etc. With the increase in the number of Internet users, all kinds of audio, text, video, pictures and
other unstructured data like that appear, these are the source of large data.
P2P lending platform can use big data locks the user groups. Combined with the technical
framework and analysis means, it uses big data to predict peoples investment intentions. In the
investor selects the P2P platform, according to the more detailed information from investors, the
platform is able to provide more appropriate services.
P2P platform can use big data mining the appropriate qualifications of investors, with the
authentication information of borrowers, it can build a huge database, through the database, provide
review and forecast more rigorous and efficient for the borrower.
Big data statistics suggests lending area, and the P2P lending Platforms can decentralize loan
direction, so as to avoid the concentration of risk. As can be seen from the figure, P2P lending
volume of Guangdong, Beijing and Shanghai ranked in the top three, so P2P lending company can
maintain existing business in these three regions and further expansion in other areas of China, to
achieve a balanced development.

Guangdong Beijing Shanghai Zhejiang Others

Shandong Sichuan Jiangsu Hubei

Figure 4. P2P lending volume.

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 According to the time data for cash flow, P2P lending platforms can adjust the appropriate
lending rates. For example, when the total net inflow of funds decreased, you can reduce the interest
rate by appropriate, to attract more people to borrow, so that the net inflow of funds can increase
again.
Cash Flow Analysis
6000

5000

4000

3000

2000

1000

0
Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16

Net Inflow of Funds Amount to be Still

Figure 5. Cash flow analysis.

Average Interest[%]
12.6
12.4
12.2
12
11.8
11.6
11.4
11.2
Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16

Average Interest%

Figure 6. Average Interest.

Through the analysis of the user's habits and preferences are conducive to the development of
P2P lending companies in line with the wishes of the new product. Compared with the traditional
model, the analysis based on big data eliminates the high cost of market research, and big data
analysis can be more accurate about the user's preferences.
Capital Utilization Efficiency.
P2P lending rate of return on investment is much higher than the bank deposit rate, and P2P
borrowing rate is far below the bank loan interest rate. Therefore, through the P2P lending platform
for financing and investment, residents can make use of funds more efficiently.
The fund custodian bank of guaranteed online company Peer-to-Peer Lending and
non-guaranteed online company PPDAI are China Merchants Bank and Minsheng Bank. The
average rate of income was 10.22%, which is much higher than its funds custodian bank Minsheng
Bank whose deposit interest was 1.65%. PPDAIs average rate of return was 20.02%, which is
much higher than its funds custodian bank China Merchants Bank whose deposit interest rate was
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2.75%. As for loan interest, the interest of both two P2P lending companies are between 0.55% to
0.88% and minimum lending interest of the Minsheng Bank and China Merchants Bank were
4.35% and 5.6% respectively, interest on bank loans is about ten times as much as the interest of
P2P lending companies.

Table 2. Comparison of interest rates between P2P lending and bank loans.
P2P lending Average rate of return Loan Interest
PAIPAIDAI 20.02% 0.55%-0.88%
Peer-to-Peer Lending 10.22% 0.55%-0.88%
Bank Deposit interest Minimum interest on bank loans
China Merchants Bank 2.75% 5.60%
Minsheng Bank 1.65% 4.35%
Therefore, through the P2P lending platform for investment and financing, borrowers can pay
less, and investors can get more income, people can make full use of surplus funds, which helps
improve the efficiency of capital utilization.
Information Asymmetry
P2P lending platform appears to solve the problem of asymmetric information in the bank
lending. Banks always loan funds to the borrower without knowing borrowers internal information
and market information, and this leads to the information asymmetry in the credit relationship. P2P
platform solves the problem of asymmetric information from three aspects.
First, P2P lending platform has reduced the cost of information, which improves the efficiency of
information transmission. P2P lending platform using online transaction mode in the material
submitted link which helps save complex process of paper materials submitted. The link of
examination is based on big data and cloud computing, so that P2P lending can examine and verify
the relevant materials more accurately, thus the cost is much lower than that of the traditional
auditing methods, besides that, the audit period is reduced from one month to 3 days.
Secondly, the information collected by P2P lending platform is of wide range, available
information can help investors and borrowers to find the most suitable project. Not only does a P2P
lending platform will collect borrowers personal basic information, but also it will asks for
borrowers personality, hobbies, etc. To help investors choose the proper borrower. In addition, P2P
lending platform allows borrower to set a different amount of lending, while investors can also
choose the amount of investment according to their own preferences.
Finally, the progress and elimination of P2P platforms is also a manifestation of information. In
the development of P2P lending platforms, many problem platforms have emerged one after
another, which is an inevitable process of market development. Through identifying which are
problem platforms, people learn how to distinguish between good platforms and bad platforms, is
also a kind of information transmission.

Table 3. Problem platforms in three major regions during March 2016.

Region Beijing Shanghai Guangdong
Out of Business 13 28 61
Difficulty in carrying out 17 12 66
Make off with Money 65 67 134
Involved in the investigation of economic 2 1 10
Total 97 108 272

Risk Reduction
In order to integrate the industry's data, such as Wangdaizhijia (WDZJ) platform, a platform of
platforms appeared. The emergence of the platform is conducive to reducing the risk.
227
 WDZJ integrates transaction data, industry data and problem platform data of almost all P2P
lending platforms, and ranks of P2P lending platforms according to the different indicators.
This website collects and releases information about the volume of each platform, average
interest rates, the average loan period and cumulative amount every day, investors and borrowers
can query transaction data about any platform at a certain period, so as to choose the appropriate
P2P lending platform for transactions.
In addition, WDZJ also includes the basic information of each P2P platform within the industry,
including the platform profile, corporate information, website for the record, platform executives
and picture information, etc. This site will mark each P2P lending company from the brand,
popularity, technology and soon, people can go through the WDZJ to understand the basic
information of each P2P lending platform, and choose from them.

Table 4. Data about P2P lending platform displayed by WDZJ.

Peer-to-Peer rank PPDAI rank
Lending
Transaction score 85 7 80 11
Popularity score 80.8 5 75 10
Technology score 72.9 18 76.4 10
Operation score 78.8 4 56 29
Leverage integration 26.8 71 28.3 66
Brand image 74.6 4 70.5 5
Transparency 51.8 7 54.3 4
Distribution 93.4 3 88.5 8
Liquidity 59.8 71 86.6 19
Development index 68.98 3 66.26 4
Finally, WDZJ has many different ranking lists, it according to the turnover, net outflow of funds
and financial leverage in the last 30 days which includes the existing 3944 P2P lending platforms.
And the lists can not only promote the P2P lending company to operate better, but also can provide
effective reference for the users.

Existing problems and Solutions

Credit Risks
For the lack of large data docking is a major risk for P2P lending platforms, there is no unified
information consulting and audit system, the information between the various sites cannot be
communicated. P2P lending platforms have to rely on offline small loan companies and third-party
guarantee institutions recommended. At present, there is no platform which has ability to integrate
all the net credit and make data analysis professionally, so crimes registering on different P2P
lending platforms for swindling happened frequently. As for P2P lending platform, the data model
which is set up based on the missing data also exists some problems, a direct consequence caused
by this model is the unreliability of credit audit. As credit management is not mature, ratio of
non-performing loans and bad debt rate will generally rise, which may causes the business income
difficult to cover the cost, and finally leads to a loss.

Management Risk
Risk control department is the core sector of the P2P lending platform, different risk concepts
will lead to different situation. However, most of the P2P platforms are better at marketing than
risk management, which will bring investors with risk. Some P2P lending platforms risk control
ways are simple, including field trips, requiring borrowers to submit collateral, the introduction of a
number of Guarantee Corporation and payment of risk reserves. Each P2P platform does not have a
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risk dynamic assessment system and risk quantitative indicators, which lead to the risk management
tool is too fragmented and non-systematic. Some platforms do not even set up a risk assessment or
legal compliance department, which is likely to cause huge risks.

Business Risk
Most of the banks are conservative to the restricted industries with high incidence of
non-performing loans when they tend to invest, so many projects have been pushed to the private
lending market, P2P lending platform. In this context, the borrowing needs from a large number of
small loan companies, financing Guarantee Corporation, non-financing Guarantee Corporation and
turned to P2P lending platforms. In addition, most P2P lending platforms are the main capital
sources to infrastructure projects, the second and third tier real estate through small loan companies,
large security companies and other channels as of the borrowing side, with the economic downturn,
more and more project lending risks begin to appear.

IT Risk
IT system of P2P lending platforms is not reliable all the time, so information security is not
guaranteed [5]. Many domestic P2P platforms exist security vulnerabilities, some vulnerabilities
may affect the user's financial security directly, and after discovery of loopholes, some platforms
select to response immediately and repair them, while some platforms select ignorance. Validation
logic bug or design defects account for the majority of vulnerabilities, attackers who use their own
password to reset can obtain verification codes, and then they can use the verification codes to reset
other users password. And this can harm other users of funds and information security. According
to Jinshan chief expert Li Tiejun [6], part of the P2P platforms are built based on a common
template, when there are security vulnerabilities, many site will be invaded. This will enable more
users fund security and information security cannot be guaranteed.
In view of the above four kinds of problems, the following solutions are proposed:
Improve the relevant legal system. Combined with the characteristics of Internet banking,
introducing practical approaches of P2P lending management, in the form of law, and make sure the
P2P lending company form, organization structure, business scope and business content are well
organized [7]. At the same time, to establish index detection system as soon as possible, and carry
out detection of all P2P platform business, and guarantee that the information about company
initiator and company legal man be fully disclosed, such as financial and operational conditions.
Strengthen the system of credit. Government should support the construction of large data storage
and infrastructure in other technical areas, and establish a sound financial credit system of the
internet. Thus enabling eligible P2P lending companies have access to the Internet financial credit
information database, which can enhance the transparency of the market
Encourage innovation, support for the steady development of Internet Finance [8]. Promoting
innovation of P2P lending platform, product and service. Not only existing P2P lending platforms
should be encouraged to innovate of the three aspects, but also traditional financial institutions
ought to develop with Internet technology, to realize the transformation and upgrade traditional
financial business and service. So that the Small and micro businesses and individuals financing
needs can be better met.

Summary
All in all, the development of the Internet has led to the development of P2P lending. By the end
of March 2016, there have been 3944 P2P lending platforms in China. At present, three types of
transaction mode have been concluded: offline transaction mode, guaranteed online transaction
mode and non-guaranteed online transaction mode. Through the analysis of the data, we can find
the efficiency mechanism of P2P lending is mainly reflected in five aspects.
At the same time, P2P lending exists kinds of risks, this paper illustrates risk from the four

229
aspects, including credit risk, management risk, operation risk and technology risk. And
corresponding solutions are given, which requires the government to perfect the laws and
regulations to appeal to industry sound credit system, and P2P lending company and traditional
institutions should be encouraged for innovation.
Internet Finance has brought great convenience to the people's life, and P2P lending meet the
majority financing needs of small and micro businesses and individual. However, first-hand
information about Internet Finance is still not very perfect. The research of the P2P lending is based
on the majority of second-hand data in this paper. So that in a few aspects reliability problems
exists. To solve this problem, the government should organize to establish a sound information
regulatory agencies, to provide a clear and reliable data for researchers.

References
[1] Sun Liyuan, Internet Finance P2P lending model research, J. China Market. 22(2014), 66-68.
[2] Ma Xiaobai, Wen Ling, Gao Ming, Internet Finance and P2P business model innovation and
strategic research, J. Finance Research. 35(2015), 30-32.
[3] Yang Sujuan, Lu Aizhen. Study on the influence of Internet Finance on the allocation of
fundsBased on the comparison of P2P and traditional banking loan, J. Contemporary Economics.
22(2015), 67-69.
[4] Wang Guoliang. Risk and regulatory path of Internet financial P2P model, J. Science &
Technology Vision. 25(2013), 267-268.
[5] Wang Dan, Ma Jiarui. Analysis of Internet financial P2P lending mode, J. Electronic Business,
19(2014), 94-95.
[6] Information on http://www.drops.wooyun.org.
[7] Zhang Yiqiu. Opportunities and challenges faced by the Internet financial P2P lending model,
J. Journal of Chifeng University (Natural Science Edition), 3(2015), 63-64.
[8] Information on http://www.gov.cn/xinwen/2015-07/18/content_2899360.htm

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Study of Promoting Economic and Trade Cooperation in the

Development of Heilongjiang Province to Russian Far East
Yi-Jun XIANG1,a, Jian-Xun LIU1,b
1
Harbin Commercial University, Harbin, Heilongjiang Province, China
a
xyj6060@126.com,b2015939573@qq.com

Keywords: Development Cooperation, Heilongjiang Province and Russian Far East, Trade and
Investment

Abstract: In the context of global economic integration and regional cooperation get more and
more attention from governments, it is essential to promote cooperation in the development of
Heilongjiang Province to Russian Far East. This paper analyze the status quo in the development of
Heilongjiang Province to the Russian Far East in aspect of infrastructure construction which include
transportation, port construction, trade, trade structure, trade, investment subject, investment and
distribution. Then find out the problems and put forward specific suggestions.

Introduction
It is an important choice for Heilongjiang Province to promote regional cooperation and the
development with Russian Far East under the new situation, the new normal in the background of
the global economic integration and regional cooperation increasingly important. In May 2012
Russian established Russian Far East Development Department which responsible for the
implementation of development and opening of Russian Far East. This indicates that the degree of
attention of Russia to the development of Russian Far East get to a new stage. State Council
officially approved the Heilongjiang and the north-east Inner Mongolia in border development of
open program in 2013. Heilongjiang is positioned as an important national opening border and an
important hub which face to Northeast Asia and Russia. All above laid the foundation for the
development of cooperation in Heilongjiang Province and Russian Far East.

The Development Status of Heilongjiang Province and the Russian Far East (1) Development
Situation of Trade with Russian Far East
The total import and export trade between Heilongjiang and Russian Far East as shown in Table
1. The total import and export trade in the two regions in increased from 641 million dollar in 2009
to 2.478 billion dollar in 2014. The increase is about 3.86 times and the annual growth rate is about
64%. The trade scale between Heilongjiang Province and Russian Far East presents the following
three features: First, the overall increase in the total border trade with slight fluctuations. From 2009
to 2013 the volume of trade of Heilongjiang Province and Russian Far East has a steady increase. It
declined slightly in 2014. The second is the changes in total exports and total imports of
Heilongjiang Province and Russian Far East. The trend of the total imports and the total imports and
exports are the same. The trend is steady growth from 2009 to 2013 and declined slightly in 2014.
While the total exports is stable rising. The exports growth rate is higher than the imports growth
rate. The third is the changes of the proportion of the total imports and exports trade of Heilongjiang
Province to the Russian Far East in the total imports and exports trade of Heilongjiang Province.
The proportion decreased slightly during the period from 2009 to 2010 and increased steadily from
2010 to 2013.In 2014 decreased slightly again.
The export structure of Heilongjiang Province to Russia Far East is shown in Table 2. The export
commodities of Heilongjiang Province to Russia which occupying first are the electromechanical
231
products. Its proportion remained at about 30%. The second is clothing whose proportion remained
at 16% to 19%. The third is agricultural products whose proportion remained at 10% to 12%.
Footwear products exports increased steadily but its proportion declined slightly. The amount of
luggage, furniture, plastics and steel export continued to rise and their proportion is relatively stable.
While the high-tech product exports rose less and its proportion has been low. Heilongjiang-Russia
Far East export commodities are mostly labor-intensive industrial products from the export structure.
Electromechanical products, clothing, footwear, luggage and furniture were approximately 55% to
63%. Raw materials, agricultural and primary processing products were about 15%. High-tech
industries and the capital-intensive industrial products which not included in the table were about
25%.

Table 1. Heilongjiang and the Russian Far East Import & Export trade performance
(Unit: billion dollars).
2009 2010 2011 2012 2013 2014
Import & Export volume 6.41 9.34 20.27 23.82 28.07 24.78
Import volume 3.74 5.35 15.64 18.05 19.40 15.20-
Export volume 2.65 3.99 4.62 5.77 8.67 9.58
Proportion 3.9% 3.7% 5.3% 6.3% 7.2% 6.4%
Data Sources: Collate and calculate from Statistical Yearbook of Heilongjiang Province and the proportion of Russian
Far East in Russia international trade accounted for finishing calculated in accordance stars

Table 2. Heilongjiang-Russian Far East main export products structure (Unit: 10 thousand dollars).

2009 2010 2011 2012 2013

summ propo summ propo summ propo summ propo summ propo
ation rtion ation rtion ation rtion ation rtion ation rtion
Electromec
29.05 29.23 29.81 30.31 29.35
hanical 0.839 0.995 1.446 1.962 2.545
% % % % %
products
17.53 18.80 16.10 16.26 19.97
Clothing 0.506 0.640 0.781 1.053 1.732
% % % % %
Agricultur 12.08 12.14 11.96 11.49 10.97
0.349 0.413 0.580 0.744 0.951
al products % % % % %
Textile 0.132 4.57% 0.122 3.58% 0.151 3.11% 0.422 6.51% 0.663 7.64%
Footwear 0.241 8.36% 0.277 8.17% 0.281 5.78% 0.483 7.47% 0.572 6.60%
Luggage 0.161 5.57% 0.249 7.31% 0.338 6.96% 0.322 4.98% 0.397 4.57%
Furniture 0.129 4.44% 0.140 4.09% 0.200 4.12% 0.316 4.88% 0.385 4.44%
Plastic
0.076 2.63% 0.088 2.57% 0.172 3.55% 0.157 2.73% 0.262 3.02%
products
Steel 0.050 1.74% 0.069 2.05% 0.137 2.83% 0.173 2.98% 0.203 2.34%
High-tech
0.069 2.37% 0.075 2.21% 0.075 1.55% 0.119 1.85% 0.156 1.79%
industries
Data Sources: Collate and calculate from Statistical Yearbook of Heilongjiang Province.
As Table 3 shown, in term of proportion, general trade is the main mode take the proportion
steady at 70%; border trade is secondary mode, processing trade has been a little proportion; other
mode is mainly non-governmental trade, because of the market does not regulate and other reasons,
it fluctuated considerably. In term of growth rate, general trade from 2009 to 2011 is steadily rising,
232
it was leaping development, but from 2012 to 2014, the growth rate is slow, rising marginally;
border trade growth rate is fluctuations, not stable enough; processing trade from 2009 to 2013 the
growth rate is very fast, but the scale is far smaller than other modes.

Table 3. Heilongjiang and the Russian Far East trade mode (Unit: billion US dollars).

years summation proportion Growth rate

2009 4.04 63.1% -
2010 6.52 69.9% 48.3%
General trade 2011 15.56 76.8% 179.3%
2012 17.42 73.1% 6.9%
2013 20.19 71.9% 3.3%
2009 1.37 21.3% -
2010 1.84 19.7% 23.5%
Border trade 2011 3.39 16.7% 116.3%
2012 4.95 20.8% 39.3%
2013 6.84 24.4% 23%
2009 0.33 5.2% -
2010 0.27 2.9% 26.2%
Processing
2011 0.35 1.7% 54.2%
Trade
2012 0.49 2% 32.1%
2013 0.59 2.1% 7.8%
2009 0.67 10.4% -
2010 0.71 7.5% -2.4%
Other trade 2011 0.96 4.8% 60.7%
2012 0.97 4.1% -4%
2013 0.45 1.6% -58.3%
Data Source: Heilongjiang Province National Economic and Social Development Statistics Bulletin
Situation of Heilongjiang and the Russian Far East Investment Cooperation
According to the Chinese Consulate General in Harrow Boeuf Gdansk Business room statistics,
the vast majority of investment companies in Russian Far East belong to Heilongjiang Province, so
this article use the China and Russian Far East investment data instead of Heilongjiang Province
and Russia Far East investment data. Chinese direct investment in the Russian Far East compared to
Chinese direct investment in Russia is small, accounting for only 0.5% to 1% of the total investment.
The distribution of Chinese direct investment in the Russian Far East as shown in Table 5, as table 5
shown, Chinese invest emphasis in the Russian Far East have shifted from Khabarovsk, Primorye,
Sakhalin, Amur extensive investment in 2008 to Primorye and Amur key investment in 2012, now
Chinese investment in the Russian Far East is mainly concentrated in Primorye and the Amur
region. Primorye in 2012 and 2013 Jan.-Sep. respectively attracted 45% and 39.9% of the total
Chinese investment in the Russian Far East; the main industries of Primorye Chinese investment for
are natural resources, timber, fisheries, tourism and leisure industries. Amur region in 2012 and
2013 Jan.-Sep. respectively attracts 22.7% and 47.8% of the total Chinese investment in the Russian
Far East, mainly for the construction industry, investment, agriculture and food processing industry.
In terms investment subject, Chinese investment in the Russian Far East are mainly small and
medium enterprises, and mostly are owned enterprises. According to the Russian Federal Bureau of
Statistics in 2011, the investor amount that Chinese capital participate in is totally 1515, which
owned enterprises are 1121, mainly in the Primorsky Territory, Harold Buff Krai. 394 joint ventures,
mainly in the Primorsky Territory.
233
 Table 4. Distribution of Chinese investment in Russian Far East (Unit: million US dollars).
Federal body 2009 2010 2011 2012 2013
Jan.~Sep.
Khabarovsk Krai 598.36 51.81 153.62 250.4 592
Primorye 1468.93 1663.12 3371.32 1489.88 2613.4
Amur 727.71 1014.98 2019.86 710.51 3126.2
Sakhalin 993.61 1316.89 842.5 150.24 46.26
Jewish Autonomous Region 72.46 383.29 472.7 291.09 77.1
Sakha Republic 5.09 5.24
Magadan 479.23 18.69 40.69 15.42
Kamchatka 175.43 163.69 106.39 197.19 70.29
Chukchi autonomous region
Total 4515.73 4593.87 6990.17 3130 6563.91
Data Source: Consulate General of China in Khabarovsk room Business Website

Problem of Promoting Cooperation in the Development of Heilongjiang Province to Russian

Far East
Problem in Trade
As can be seen from the above analysis, there are still many problems in the two areas trade:
In terms of trade volume, while the two areas trade scale is growing in recent years, but the
proportion of total import and export trade of Heilongjiang Province and Russia's Far East in total
foreign trade of Heilongjiang Province is fluctuated from 4% to 7%.Its not enough to Russian Far
East, as the largest border region with Heilongjiang Province more than 3000 kilometers.
On the import and export structure, imports grew faster than exports. The reason for this is the
economy development of Heilongjiang Province and gradual increasing demand for energy,
minerals. Exogenous demand increasing caused by the output of Jixi, Hegang, Daqing and other
places where produce energy and mineral become progressively weaken. Russian Far East is mainly
export energy and mineral, can fulfill demand of Heilongjiang Province, so export growth rate
higher than the growth rate of imports in Heilongjiang Province.
In the trade structure, trade cooperation level is limited. The main content of Heilongjiang
Province to Russian Far East is based on the general level of commodity exchange for
complementarity. Only a little economic and technological cooperation that achieve elements
restructuring and value-added, far from the cooperation required situation which industrial
innovation, institutional innovation and economic common growth.
The types of commodity by industry export to Russian Far East mainly is the second industrial
commodity, supplemented the first industrial goods, only a little the third industrial commodity. In
the types of trade, accounting for the majority is goods trade, services trade such as tourism,
consulting, financial services and other types of trade species are only a small part. For
Heilongjiang Province, main reason is slowly adjustment of industrial structure. In the industrial
structure of Heilongjiang Province, the second industry, especially heavy industry proportion is
higher, in 2012, three kinds of industry to GDP ratio between 15.4: 44.1: 40.5, the second industry
dominant, reserved for emerging industries the development of a limited space. Currently high-tech
industries in Heilongjiang Province are immature, product output scale is small, and the quality of
product is also difficult to compete with leading high-tech enterprises.
Problem in Investment
In terms of policy, Russia's economic policy is very unstable, since Russian government
introduced investment law in 1991, the policy for foreign investors change very frequently, often
capricious, or even diametrically opposed. It will greatly affect the motivation and confidence in
Heilongjiang Province Investment enterprises.to Russian Far East.

234
 In terms of investment environment, the development trend of investment in Russian Far East in
recent years is very good. Due to Russia have accessed to WTO in 2012, some industrial limits are
canceled, and the investment environment are gradually consistent with international. Because of
the whole economy in Russia develop rapidly and government approved the establishment of nine
leapfrog development zone that attract most foreign investors to invest infrastructure, energy,
mining, industrial parks and facilities project. But Russia's heavy tax burden remains a major
problem bothering investors. The Russian government issued the relevant legal provisions,
restructuring taxation, the total tax revenue is limited to 32% of GDP or less in 2012, however, local
governments still set up various names charges, taxes and other costs remain quite harsh. Except
heavy tax, there is other state capital competition problem. Due to the Chinese capitals majority are
small-medium companies or owned companies, have less competitive to compare with foreign
capitals like Japan and South Korea which mostly focus on investment in the Russian Far East.

Policy of Promoting Cooperation in the Development of Heilongjiang Province to Russian Far

East
Accelerating the Upgrade Process of Investment Cooperation with Russia Far East
Promote investment diversification, transfer the investment risk
In the past Chinese investment form to the Russian Far East mainly is direct investment, currently
there are two main problems. First, the lack of funding source and weak strength of investors, some
of that only can invest the small Russian Far East on project development investment, which makes
investment firms could not reward high profits, reduce the investment enthusiasm of enterprises.
Second, the complex investment environment in Russia and government policy flip-flop, if there is
a problem, the investors will face large risks and hard to divestment. Invested enterprises in
Heilongjiang Province may consider changing the investment measure, through purchasing Russian
corporate stocks and government bonds to indirect investment, which have lower risk and no
economic dispute, can solve the problems.
Change the investment subject, enhance the competitiveness of investor
The main investment subject of Heilongjiang Province to Russian Far East is Small and medium
enterprises. Government should encourage large enterprises to invest in the Russian Far East,
change the investment subject from the small-medium companies gradually transformed to
medium-sized companies, this will not only improve the subject abilities of resisting risks and
compressive, but also improve our overall competitiveness, and strive for greater interest from
Japan and other foreign enterprises. For SMEs, it may jointly set up Capital Group, drawing
investment programs Sakhalin project, not only can reduce the risk of independent investment in the
Russian Far East, but also more involved the key projects in the Russian Far East like oil, natural
gas, etc.
Increase Investment in High-tech Enterprises, Construct Sino-Russian Cooperation
Technology Platform
To strengthen cooperation with Russia in high-tech industries, we can both improve the high-tech
products technical inputs and enhance high-tech enterprises size. High-tech enterprises in
Heilongjiang Province are still smaller scale and not form a cluster effect, we can make existing
resources of high-tech integrate and take the group of development path. Only take that measure can
enhance their strength and produce more and better high-tech products.
Improve Information Security, Optimize the Coordination Mechanism
Information lack is the inevitable result of the contemporary market economy monopolistic
competition, also is a stumbling block between China and Russia trade. Information transmission
untimely and distortion will lead to information stale. Over time, the issue will be seriously
hampered the healthy development of bilateral economic and trade relations. China and Russia are
well aware that in the current world of globalization and economic integration the accuracy and

235
timely of the information transmitted directly related to the lifeblood of enterprise development,
directly related to the smooth development of bilateral strategic partnership. Therefore, the current
Sino-Russian core task is to establish and improve the information network platform. According to
the relevant information is displayed, the two sides have reached agreement on the establishment of
information cooperation between the two countries, as well as Foreign Ministry also active efforts
to promote the establishment of China-Russia economic and trade information network. At the same
time, the Heilongjiang Province government will steady cooperation with Russia on the basis of
strengthening the existing information network, jointly build a wide range, abundance information,
multi-user, faster speed network platform, which can provide information security for Heilongjiang
and the Russian Far East.

References
[1] M.B. Alessandro , Zhu Xianping, Sunxu. Chinese investment in Russia: Status, Trends
and Development Direction [J]. Northeast Asia Forum, 2014, 02:11-20+127.
[2] Guo Liancheng. Review progress in eastern Russia to develop new strategies for regional
economic cooperation between China and Russia [J]. Russian, East European and Central Asian
Studies, 2014, 05:52-60+96.
[3] Shaobing. Border areas of cross-border economic cooperation in research [J]. Economic
Review, 2015, 02:59-62.
[4] Liying. Considerations of participate in the development of the Russian Far East [J]. Finance
Theory and Teaching, 2015, 03:57-59.
[5] Zhai Zhigang. Cross-border economic cooperation: Heilongjiang Province and Russia to
deepen cooperation in Northeast Asia and the restructuring and development of innovative new path
[J]. Around Southeast Asia, 2013, 10:46-49.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Development Relationship Research between Retail Industry and

Regional Economy Based On Coupling Coordination Degree Model

Li-Na ZHANG
College of Management, Guang Zhou Panyu Polytechnic ,No. 1342 Shiliang Road Shawan Town
Panyu District Guangzhou City, China
120597018@qq.com

Keywords: Retail Industry, Regional Economies, Coupled Scheduling

Abstract: Under the guidance of system optimization theory and coordination theory, this paper
constructs the evaluation index of the retail industry and regional economic development, By the
coupling coordination degree model Make an empirical analysis of the coupling coordination degree
between the retail industry and the regional economy in six provinces and cities in the eastern coastal
areas of china, The results find that six provinces and cities in the retail industry and regional
economy in general did not enter the coordinated development of the class, being on the verge of
economic lag.

Introduction
Retail industry is the leading industry to guide consumption.The influence of the development level
of the retail industry on the development of regional economy is self-evident. Consumption driven
economic model initially appeared. The impetus of China's economic growth is driven from by
investment and production oriented to consumer driven and market driven.
The development level of the retail industry represents the regional consumption level to a certain
extent. China's economic development is not balanced. There is a large regional gap between the
eastern and Western Regions. This will inevitably lead to the development of retail industry also
having the characteristics of regional differences. At present, study on the circulation or retail industry
and regional economic growth or development relationship are mostly concentrated in the eastern and
Western differences, few researchers focus on the study of the difference of economic developed area.
The development level of retail industry in the developed area is much higher than that in the central
and western regions. The study of the difference between the retail and regional economic
coordination in the developed areas is essential. Therefore, this paper selected the GDP ranking by the
former economically developed eastern coastal provinces of Guangdong,Zhejiang, Jiangsu,
Shandong and two major cities of Shanghai and Beijing and other six provinces and cities as
empirical research object.

The Coupling Coordination Development of Retail and Regional Economy

Retail is a leading industry of the regional economy, without the highly development of retail,
neither a strong retail nation nor a powerful economic body can exist.
The Development of the Retail Industry can Promote the Development of Regional Economy
Retail market play an increasingly important role in stimulating domestic demand, expanding
consumption, promoting economic growth, promoting the actualization of large-scale and
industrialization production of the upstream industries. In 2012 China's retail industries have
improved 1.9 trillion yuan, nearly contributed the one tenth value of the tertiary industry. The
contribution to the growth of GDP is about 5.9%. The tax revenue of retail industry is 384.4 billion
yuan, accounting for 6.9% of the tertiary industry and 3.5% of the national tax revenue separately. The

237
wholesale and retail of 2014 contributed to 0.9% proportion growth of gross domestic product, plays
an active role in driving economic growth and increases the financial income.
The Development of Regional Economy can Promote the Development of the Retail Industry
The mechanism of regional economy can promote the development of the retail lies in two aspects,
on the one hand, as the development of regional economy, peoples income raise, thereby their
consumption desire and capability improved consequently, the motivation of consumption is strong,
contributing to the increase of the consumption amount and the ascension standard of consumption,
and promoting the development of retail industry which connects with terminal markets, on the other
hand, as the development of regional economy, the government can intensify the development of
infrastructure construction, facilitates the residents communications and stimulates consumption
indirectly, at the same time, the development of regional economy builds the capital foundation for
the upgrading and remolding of terminal retail, provides the policy and financial guarantee for the
upgrade of retail industry.

Coupling Coordination Degree Model of Retail Industry and Regional Economy

The Calculation of the Level of the Comprehensive Development of the Retail Industry and the
Regional Economy
Standardized Data Processing. Because the original data has a different dimension, the data
should be analyzed, and the data standardization process is needed. The method of dimension is
generally initialized, mean, deviation and so on. In this paper, the standard deviation of the original
data is a linear transformation, so that the results fall into the [0,1] range. Assuming a given K index
such as , ,, , among them, , if the indicators data normalized value is
then the conversion function is as follows:

(1)

Determination of Index Weight. In order to minimize the weight of the subjective consciousness,
this paper uses the entropy weight method to determine the weight of each index of the two systems.
Entropy describes the state of a system, the more information it contains, the greater the difference.
Generally speaking, if the information entropy of a certain index is smaller, it shows that the degree
of variation of the index value is bigger. The more information can be provided, the greater the
function of the comprehensive evaluation can be, and the greater the weight. On the contrary, the
information entropy of an index is bigger, indicating that the variation degree index value is small,
the amount of information available is less, which plays in the comprehensive evaluation of the role is
small, the weight is small.

(2)

, According to the calculation formula of information entropy, the information

entropy of each index is calculated . The weight of each index is calculated by the
information entropy:

(i=1,2,,k) (3)

238
 The Comprehensive Evaluation Function is Used to Calculate the Comprehensive
Development Level of The Two Systems. The Formula to Calculate is:

, (4)

and are respectively the comprehensive development level of retail system and regional
economic system. is the standard of each index system of retail value. is the standard of each
index of regional economic system, and the weights of the corresponding index summation.
Coupling Degree of Retail Industry and Regional Economy
Coupling refers to two or more than two systems through various interactions and influence each
other, is in the positive interaction between each subsystem, interdependence, mutual coordination
and mutual promotion of the dynamic relationship[1].Coupling as a physics concept, it is now widely
used in biology, geography, environmental science and other fields. In recent years, some scholars
have applied it to the field of regional economics. Chen Chengyi taking Dongguan as a typical case
area, constructed the evaluation model of the high and new technology industry and the urbanization
development level, analyzed the coupling coordination between the the high-tech industry and the
urbanization in towns of Dongguan city in 2002, 2007 and 2012, with the physics of the coupled
model[3]. Zhang Lin analyzed the coupling coordination mechanism of financial development and
technological innovation in theory, constructing the system coupling coordination model of financial
development and innovation of science and technology with China mainland except Tibet outside 30
provinces and cities 2002-2012 panel data on both the coupling coordination degree of empirical
research[4]. Liu Lijuan using Qinhuangdao, Hebei as an example analyzed the coupling status of the
composite system composed of tourism industry and economic development Based on the
quantitative analysis method of coupling coordination degree between tourism industry and regional
economic development[5].Zeng Ming built the coupling coordination degree evaluation index system
of the energy, economy and environment system, measured and analyzed the development level of
these three systems based on principal component analysis,calculated the coordination degree of the
systemby using the coupling coordination degree model[6]. Through the practice of many scholars, the
coupling coordination degree model has strong operability, stability and a wide range of application.
Therefore, this paper attempts to use the theory of retail industry and regional economy as the two
system, construct a coupling coordination model between two systems. This model aims to reveal the
dynamic development level of the coupling of the retail industry and the regional economy, and the
size of the coupling degree of the two systems shows the degree of coordination between the retail
industry and the regional economy.
By referring to the concept of capacity coupling and coupling coefficient model in physics, the
coupling degree is calculated. A variable (i=1,2,,m)and (j=1,2,,n) respectively represent the
system. The interaction of multi system coupling model can be expressed as

=n (5)

When there are only two systems, they can be directly obtained from their coupling function. That
is:

=2 (6)

According to (4), the degree of coupling between the retail industry and the regional economy
can be defined as:
239
 =2 (7)

Obviously the coupling degree is between 0 and 1. When tends to 1, the coupling degree of
the retail system and regional economic system is the biggest, which shows that the two systems can
achieve a good resonance coupling. When tends to 0, the minimum coupling degree between the
retail system and the regional economic system shows that the two systems are in a state of nothing
and the system will be out of order.
Coupling Coordination Degree of The Retail Industry and Regional Economy
Referring to the previous research results, the quantitative indicators of the retail industry and
regional economic development level are called as the coupling coordination degree.

D (8)

Among them T=
D is the coupling coordination degree. is the coupling degree. T is a comprehensive evaluation
index of the retail industry and regional economy, reflecting the overall coordination of the two
systems. Considering the regional retail development and regional economic development is the
mutual promotion and mutual influence, take
Evaluation Criteria of Coupling Coordination Degree between Retail Industry and Regional
Economy
Based on the results of previous research, according to the size of the coupling coordination degree,
the retail industry and regional economic status of coupling coordination are divided into three
categories and ten sub categories, again according to the retail industry and regional economy
comprehensive evaluation index and contrast relation each subclass is divided into three
types, forming 30 kinds of basic types in Tables 1.

Empirical Research

Construction of Evaluation Index System

In order to construct the evaluation index system of the retail system and regional economic system,
through a large number of documents refer to reference the existing research results, this paper
formed a preliminary framework to select the indicators combined with principal component analysis
method. The evaluation index system of the retail industry is mainly from the view of performance,
constructing the three levels index type such as investment effect, industrial effect and employment
effect. The evaluation indexes of regional economic system are mainly from two aspects, which are
consumption effect and economic growth effect. Specific indicators are shown in Table 2.( All data
are from 2015, 2014, and 2013 statistical yearbook of research provinces) Using the entropy weight
method according to (1), (2) and (3) formula to determine the weight of each index of the two systems
in Table 2.

240
 Table 1. Evaluation standard of the retail and regional economy coordination degree.
Coordinati Coordination Coordin System relationship and
on degree(D) interval ation type type
0.00-0.09 Disorder Extreme Retail industry lag
class(Unacceptable disorder type
0.10-0.19 range) Severe
disorder
0.20-0.29 Moderate
disorder
0.30-0.39 Mild
disorder
0.40-0.49 Transition On the verge
class(Barely of disorder
0.50-0.59 acceptable range) Barely Retail and
coordinate economic synchronization
0.60-0.69 Order Primary > Economic lag type
class(acceptable coordination
0.70-0.79 range) Intermediate
coordination
0.80-0.89 Good
coordination
0.90-1.00 Quality
coordination

Table 2. Evaluation index and weight of retail and regional economic system.
evaluation Evaluation evaluation index weight
system level
Retail Investment Total assets of retail enterprises / Million yuan
0.0306
system effect
Total fixed asset investment in retail industry /
0.2581
Billion yuan
The use of foreign investment in the retail
0.0700
industry /Million dollars
Industrial Retail industry output value / Billion yuan 0.0334
effect The retail industry output value proportion of
0.0361
GDP /%
total volume of retail sales / Billion yuan 0.0621
Number of retail enterprises / individual 0.0213
Employment Number of retail workers /million people 0.0849
effect Retail workers accounted for the proportion of
0.0510
total employment /%
Regional Consumption Total retail sales of social consumer goods /
0.0413
economic effect Billion yuan
system Urban per capita disposable income /yuan 0.0309
Residents Consumption Pay / Billion yuan 0.0336
average consumption rate /yuan 0.0388
Average wages of staff and workers /yuan 0.0196
Economic GDP/ Billion yuan 0.0407
effect average GDP/yuan 0.0335

241
 output value of third industry / Billion yuan 0.0357
The proportion of tertiary industry output value
0.0486
of GDP /%
Local public finance income / Billion yuan 0.0300

Calculation Result
According to (1), (4), (7) and (8) four formulas to calculate the six provinces and cities retail system
and regional economic system comprehensive development level, coupling degree and coupling
coordination degree. According to the previous research results, the coordination types of the two
systems are listed according to the comparison of the data indicators in Table 3.

Table 3. Six provinces and citiescoordination type of retail and regional economic system
from 2012 through 2014.
Provinces and D type
cities Coupling System comparison
coordination
degree
Guangdong Barely Economic lag type
0.39 0.24 0.97 0.55
province 2014 coordinate
Guangdong Barely Economic lag type
0.36 0.20 0.96 0.52
province 2013 coordinate
Guangdong On the verge Economic lag type
0.34 0.17 0.94 0.49
province2012 of disorder
Guangdong Barely Economic lag type
province 0.36 0.20 0.96 0.52 coordinate
average value
On the verge Retail industry lag
Beijing2014 0.17 0.18 1.00 0.42
of disorder type
On the verge Retail and
Beijing2013 0.16 0.16 1.00 0.40 of disorder economic
synchronization
Mild disorder Retail industry lag
Beijing2012 0.10 0.12 1.00 0.33
type
Beijing average Mild disorder Retail industry lag
0.14 0.15 1 0.38
value type
On the verge Retail industry lag
Shanghai2014 0.16 0.18 1.00 0.41
of disorder type
Mild disorder Retail and
Shanghai2013 0.15 0.15 1.00 0.39 economic
synchronization
Mild disorder Economic lag type
Shanghai2012 0.15 0.12 0.99 0.37
Mild disorder Retail and
Shanghai
0.15 0.15 1 0.39 economic
average value
synchronization
Zhejiang On the verge Economic lag type
0.21 0.15 0.99 0.42
Province2014 of disorder

242
 On the verge Economic lag type
Zhejiang
0.19 0.13 0.98 0.40 of disorder
Province 2013
Mild disorder Economic lag type
Zhejiang
0.16 0.11 0.98 0.36
Province 2012
Zhejiang Mild disorder Economic lag type
Province 0.19 0.13 0.98 0.39
average value
Jiangsu On the verge Economic lag type
0.26 0.22 1.00 0.49
Province2014 of disorder
On the verge Economic lag type
Jiangsu
0.23 0.18 0.99 0.45 of disorder
Province 2013

Table 3. Six provinces and citiescoordination type of retail and regional economic system
from 2012 through 2014(Cont.).
Provinces and D type
cities Coupling System comparison
coordination
degree
On the verge Economic lag type
Jiangsu
0.18 0.14 0.99 0.40 of disorder
Province 2012
Jiangsu On the verge Economic lag type
Province 0.22 0.18 0.99 0.45 of disorder
average value
On the verge Economic lag type
Shandong
0.37 0.15 0.91 0.49 of disorder
Province 2014
On the verge Economic lag type
Shandong
0.30 0.12 0.90 0.44 of disorder
Province 2013
Mild disorder Economic lag type
Shandong
0.24 0.09 0.89 0.38
Province 2012
Shandong On the verge Economic lag type
Province 0.30 0.12 0.9 0.43 of disorder
average value
Global average On the verge of disorder, Economic
0.23 0.16 0.97 0.43
value lag type

The Result Analysis

The table 3 shows the average coupling of two system of six provinces is 0.97, it shows the orderly
coordination development of the retail industry and regional economic and good win-win
relationship, the average overall coordination degree of retail trade and regional economy is 0.43,
belong to the barely transitional accepted range of nearly mismatched, the average of retail

243
system is higher than the of regional economic system and is ascribed to the lagging type
economy.
the highest average coordination degree is 0.52 of Guangdong province among the six provinces in
the lately three years (2012-2014), this belongs to the barely coordinate transition interval, followed
by Jiangsu and Shandong provinces which is 0.45 and 0.43 respectively, they lay in the transition zone
on the verge of mismatch, then Shanghai and Zhejiang province, both of them are 0.39, the lowest is
0.38 of Beijing, The coordination type of the above three provinces lay in a mild mismatch and
unacceptable range, then the retail industry and regional economy coordination degree type of these
six provinces can be classified into two kinds, one kind contains Guangdong, Jiangsu, Shandong
provinces which lay in the transitional barely accepted range, the average retail system of is
higher than the regional economy system of . The other kind contains Shanghai, Zhejiang and
Beijing, the three lay in a mild mismatch and unacceptable range, the average retail system of is
equal to, greater than and less than the regional economy system of respectively.
Looking from the time series of six provinces in 2012 and 2014, the coordination degree
transformation type of Guangdong province is from barely coordination to barely coordination to the
verge of mismatch, the change of Jiangsu province is from the verge of mismatch - the verge of
mismatch- the verge of mismatch, Beijing, Shandong and Zhejiang provinces are from verge of
mismatch -verge of mismatch - mild mismatch, Shanghai transformation from verge of mismatch -
mild mismatch - mild mismatch. The retail systems and regional economic development coordination
degree of these six major coastal developed provinces in lately three years are not optimistic, their
coordinate trend is declining.

Summary
At present, the retail industry and the regional economy in the six provinces and cities basically do
not enter the coordinated development of the class, are in the verge of economic lag. The reason is to
on the one hand, the development of the domestic economy year after year boosts consumer
confidence of the people and the release of the consumption potential, on the other hand, the
traditional retail business impacts into the shuffle reforming stage, coupled with the promotion of
traditional retail supply chain efficiency low and domestic labor costs lead to the sale of high
commodity prices, which appeases being defeated by the electricity supplier having price advantage
online and by overseas retail having high quality and low price of goods offline, the next line of high
cost of overseas retail industry to replace. In inside and outside attack of the retail industry in the
developed region of China appear retail system development level exceeds the level of regional
economic development of the "fire" in the prosperity.
The traditional retail industry should optimize its structure and improve the quality and efficiency
of management. When traditional retail and online retail achieve in place of online and offline
resources reorganization, is when the the retail industry and regional economic is in place for
coordination. Therefore, how to optimize the structure of the traditional retail industry, and how to
improve the quality and efficiency of the integration with the electricity suppliers to promote regional
economic development is the need to further explore the issue

Acknowledgement
This research was financially supported by the social science planning foundation of Guangdong
Province, China, Project number is GD11YYJ09.

244
References
[1] Cassiman B, Veugelers R. R&D cooperation and spillovers: some empirical evidence from
Belgium[J].American Economic Review, 2002, 92( 4) : 1169-1184.
[2] Valerie Illingworth. The Penguin Dictionary of Physics [M]. Beijing: Foreign Language Press,
1996: 9293.
[3] Cheng Chengyi,Yang Ren, Analysis of spatial and temporal characteristics of coupling
coordination degree between regional urbanization and high tech industryTaking Dongguan city as
an example[J], 2015 National Symposium on the development and improvement of land resources
and the construction of new urbanization.
[4] Zhang Lin,Study on the coupling mechanism and coupling coordination degree of financial
development and scientific and technological innovation, Southern Finance, 2015(11).
[5] Liu Lijuan, Coupling coordination degree analysis and control strategy of tourism industry and
economy[J], Commercial Times, 2014(6).
[6] ZengMing, Study on coupling coordination degree of energy, economy and environment system
in China based on principal component analysis[J], Journal of North China Electric Power University
(Social Science Edition), 2013(3).

245
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on Catastrophe Risk Financing Mode for

Tailings Pond Dam Break
Zi-Nan HU1,a,*, Guo-Qing LI1,b, Nai-Lian HU1,c
1
School of Civil and Environmental Engineering, University of Science and Technology Beijing,
Beijing 100083, China
a
thornbirds925@sina.cn, bqqlee@ustb.edu.cn, chnl@ustb.edu.cn
*Corresponding author

Keywords: Tailings Pond Dam Break Risk, Catastrophe Risk, Financing, Insurance.

Abstract. Aiming at disaster relief emergency fund for tailings pond dam break and financing
channels of compensation after disaster in China, with the goal of achieving passing and
decentralization of tailings pond dam break risk and reducing the impact on social economic to the
utmost, this thesis studied on catastrophe risk financing mode for tailings pond dam break. Through
analysis, four main problems were obtained, including risks in relevant system of tailings pond dam
break risk financing have not been effectively transferred, occupying production funds of
enterprises, insufficient total amount of financing and narrow scope of compensation. Further
integrating with foreign catastrophe risk financing experience and application cases of floods,
earthquakes and others, catastrophe risk financing mode and operating mechanism suitable for
Chinas tailings pond dam break were put forward, catastrophe risk financing management mode
dominated by government and assisted by commercial insurance company was formed, with the
effectiveness and feasibility of such mode guaranteed through insurance technology, engineering
risk prevention and increasing of coverage of insurance program.

Introduction
Tailings pond, formed by damming for intercepting the mouth of a valley and exclosure, is a
place for stockpiling tailings from metal and nonmetal mines after ore separation, which is an
essential site for maintaining normal production of mine[1]. At the same time, tailings pond is also a
kind of man-made debris flows with high potential energy and dam break risk, making it a major
hazard source to downstream safety. In the worlds 93 kinds of accidents and public hazard hidden
trouble, tailings pond accident ranks No. 18[2]. Currently, the worlds different kinds of tailings
ponds in use are more than 20,000[3]. Lemphers et al carried out statistics for 3,500 tailings ponds
around the world and found that happen to an average of 2-5 tailings ponds were hit by dam break
each year and the occurrence rate of tailings pond dam break was 10 times of that of reservoir dam
break[4,5]. By the end of 2014, there were still 11,358 tailings ponds in China, of which 772 were
with potential risk[6]. With changes in ecological and social environment and growing and
concentration of human wealth, the impact of tailings pond dam break on social economy became
more and more obvious. For example, a huge tailings pond accident of New Tower Mining
Company in Xiangfen County, Shanxi on September 8 led to more than 90,000,000 Yuan of direct
economic loss and had huge recessive effect on the local environment and economic development.
Under this background, there are two important issues in theory and practice fields needing to be
solved: how to achieve transfer and apportionment of tailings pond dam break risk; how to finance
the losses caused by tailings pond dam break timely and effectively so as to minimize the impact of
disaster on social economy. Therefore, to establish catastrophe risk financing mode for tailings pond
dam break and to raise disaster relief funds rapidly are extremely important for dealing with tailings
pond dam break.
246
Systems and Problems about Chinas Risk Financing for Tailings Pond Dam Break
Currently, relevant systems of tailings pond dam break risk financing in China are work safety
risk deposits system and work safety liability insurance system.
Work safety Risk Deposits System
Ministry of Finance, State Administration of Work Safety and People's Bank of China jointly
formulated and issued Interim Measures for the Administration of Work Safety Risk Deposits of
Enterprises in July 2006 with a view to strengthening work safety awareness and liability of
enterprises and guaranteeing smooth implementation of accident and disaster relief. Work safety
risk deposits refer to a special fund in a special bank account opened by an enterprise in the name of
its legal person or partners for its own emergency and disaster relief in work safety accidents and
afterward disposals.
But risk deposits system has the following problems for tailings pond dam break risk financing:
(1) The government urges enterprises to defend themselves by risk deposits system. It is not a
way to transfer risks by a companys own fund in deposits to take precautions against future trouble.
Transfer of risks is that units or individuals that may be in danger transfer the risk to a third party by
contractual or non-contractual means to avoid the losses caused by potential dangers.
(2) Risk deposits system directly freezes partial asset of the participating enterprise with a period
of the enterprises life-span in its original product field and an amount of money varies from
300,000 Yuan to 5 million Yuan. Under the constant slowdown of mining market, the policy will
make mineral enterprises have tenser capital chain, lower productivity effect and lower initiatives to
relieve disasters.
(3) Risk deposits system cant raise compensation funds for disaster relief quickly. Interim
measures provided that work safety risk deposits of enterprises in principle should not exceed 5
million Yuan; however in recent years, the loss arising from tailings pond dam break accident in
china, such as the 9.8 major accident of tailings pond dam break in Xiangfen county, Shanxi
Province, the direct economic loss was more than 90 million Yuan. A 5-million-yuan risk deposits
cant have urgent effect and it would take a long time to get disaster-relief funds, such like financial
contingency fund and social contributions, which will delay the disaster relief and proper settlement
of the victims.
Work Safety Liability Insurance System
Work safety liability insurance is a product that production and operation entities implement
compensation liability for the dead and the crippled after work safety accidents. Compared with
work safety risk deposits, work safety liability insurance wont freeze a large amount of the
enterprises fund at one time and can quickly integrate into a relatively large amount of fund for
emergency and disaster relief. But today, the work safety liability insurance in Chinas insurance
market doesnt have an effective solution for the risk financing problem of tailings pond dam break.
Work safety liability insurance mainly provides death and disability compensation for employees of
the insurants and the third party related to accidents. The property damage, environmental damage
and dam break caused by natural disaster will not be compensated. There are both human factors
and natural factors in causing the dam break of tailings pond. Negative externalities involve many
aspects, such as personal injury, property loss, environmental damage and the slowdown of
economy, so the work safety liability insurance obviously cant entirely transfer the risk of dam
break.

Catastrophe Risk and Experience of Catastrophe Risk Financing in Foreign Countries

Catastrophe and Catastrophe Risk Financing
According to the qualitative definition of United Nations Environment Programme (UNEP),
catastrophe is a kind of serious social dysfunction that causes human, material and environmental
damage on a large scale, and such damage has overweighed the capability that the society can bear
247
with its own resources[7]. Swiss Re has defined catastrophe quantitatively and revised data
regularly to adapt to catastrophe insurance market of different periods; Table 1 shows the
catastrophe criteria in 2013 published by Swiss Re in Sigma:

Table 1. Sigma catastrophe criteria in 2013.

Shipping 19.30 million [USD]

Insured losses
Aviation 38.60 million [USD]
Others 48.00 million [USD]
Or total economic losses 96.00 million [USD]
Dead or missing 20
Or casualties Injured 50
Homeless 2000

Financing, namely, accommodation of funds, has two economic characteristics in essence: first, it
promotes funds to flow from surplus side to demand side; second, with flow of funds, it
redistributes cash flow related risks generated in tangible assets between fund supple and demand
sides[8]. Catastrophe risk financing refers to risk transfer activities carried out before the
catastrophe with the purpose of avoiding uncertain losses caused by catastrophe. Risk bearers
conduct fund restructuring or risk apportionment through insurance, reinsurance, capital market,
government participation, etc. Some developed countries already have mature experience in
catastrophe risk financing; they make full use of indemnity insurance and risk apportionment to
safeguard the stable and safe running of society, economy and finance market, and reflect different
running modes based on individual situation of catastrophe and financial insurance markets. From
the worldwide average level, insurance assumes about 30% of the economic losses caused by
natural disasters and even over 60% for developed countries[9].
Catastrophe Risk Financing System in Foreign Countries
Currently, the world's catastrophe risk financing systems mainly rely on catastrophe insurance
management and can be classified into three categories represented by the UK, the US and Japan
respectively.
Flood insurance of the UK is voluntary catastrophe insurance where insurance companies can
voluntarily determine whether to underwrite flood insurance according to its own demand in
business and market development as well as its cooperation with the government. Usually, the flood
insurance is bonded in the insurance coverage of standard property policy for family and small
enterprise, and the policy owner can voluntarily choose to buy property policies covering different
kinds of flood insurance. The government is mainly responsible for investment in and construction
of flood control project, but its not directly involved in operating management of flood insurance or
risk assumption.
The National Flood Insurance Program (NFIP) of the US is mandatory catastrophe insurance
mainly administered by the government. In essence, NFIP is a national insurance system authorized
by law and managed and financed by the government; in general, the operating expenses and
insurance claims of NFIP are paid for through the collected premiums and its operation, but if its
losses exceed the historical average, NFIP has the authority to borrow up to 1.5 billion dollars from
the U.S. Treasury, and the United States Congress may also offer special appropriation, indicating
that the government is involved in risk assumption[10]. Private insurance companies are only
responsible for issuing flood insurance policy and get the corresponding remuneration.
The earthquake insurance system is catastrophe financing system involving both the government
and the insurance companies, and its main carrier is Japan Earthquake Reinsurance Co., Ltd. (JER).
The commercial insurance company first sells earthquake insurance as additional insurance of fire
insurance, then it reinsures the underwritten earthquake insurance to JER in full. JER will divide the
risk insurance into three parts: one part recovered by the commercial insurance company, one part
248
reinsured to the government, and one part retained for itself, forming a risk apportionment mode
involving three parties of two levels. In the event of earthquake losses, the three parties assume the
losses on five levels according to the predetermined rules (see Table 2). With the total insurance
compensation of 5.5 trillion yen, the government assumes 4.3915 trillion yen, and JER and the
commercial insurance company assume 877.81 billion respectively.

Table 2. Proportion of loss apportionment of each level for earthquake insurance of Japan.

Insurance compensation for single Direct insurance

JER Government
earthquake [billion yen] company

1st level 0-115.0 100% 0 0

2nd level 115.0-1,122.6 0 50% 50%

3rd level 1,122.6-1,925.0 50% 50% 0

4th level 1,925.0-3,712.0 0 95% 5%

5th level 3,712.0-5,500.0 5% 95% 0

Feasibility analysis for China to Build Catastrophe Risk Financing Mode for Tailings Pond
Dam Break
Broadly speaking, tailings pond dam break is classified into catastrophe due to its following
features: (1) small probability of occurrence; (2) impossible to overcome to some extent; (3)
possibility to cause huge casualties and property losses in a short time and even affect many aspects
of the national economy, such as finance, insurance and other industries. The catastrophe risk
financing system has not been formed in China, but the serious catastrophe situation makes its
establishment extremely urgent. The relative academic fields in China have been conducting
theoretical studies for a long time and Some Opinions of the State Council on the Reform and
Development of the Insurance Industry published in 2014 proposed to integrate insurance into
disaster prevention and relief system and specified specific measures. Therefore, the study on
establishment of risk financing mode for tailings pond dam break can refer to theories and practice
of catastrophe risk financing.
In addition to the common features as catastrophe, tailings pond dam break also has its own
characteristics: (1) tailings pond is an artificial structure with large volume and potential energy;
compared with natural disasters, the dam break risk is more controllable, but its easy to become
secondary disaster of natural disasters; (2) disaster caused by tailings pond dam break is of great
externality, that is, the affected people, property and environment are always outside mining
enterprises jurisdiction. Therefore, different from catastrophe risk financing system, the risk
financing mode for tailings pond dam break takes mining enterprise as the policy holder and
populations within the dam break risk area as the insured.
Accordingly, the administrative objectives of risk financing mode for tailings pond dam break
should be: (1) drawing mining enterprises attention to safe operation of tailings pond and
improving disaster prevention and reduction measures in operation of tailings pond through
appropriate incentives; (2) managing funds of risk financing through commercial insurance,
improving product mobility and realizing transfer of tailings pond dam break risk to a third party; (3)
ensuring ideal coverage of insurance program through mandatory administration of the government,
and ensuring that the non-profit activities proceed smoothly during establishment of financing
mode.

249
Mechanism Design of China Establishing Catastrophe Risk Financing Mode for Tailings
Pond Dam Break
Select Governance Mode Guided by the Government
The government is the participator who plays an important role in the catastrophe insurance
system. It is responsible for formulating and promoting the establishment of financing mode,
maintaining laws and regulations of stabilizing financing mode, repairing disaster prevention and
reduction facilities, providing risk insurance rate map, hydrology, geology and climate research data
and disaster warning and mobilization and diffusion before the disaster. While, in the NFIP plan of
US, the government also plays an important role in the management and operation of the whole risk
system. The insurance market of China is not mature, the social insurance consciousness is
indifferent, so we the compulsory management measures from the government to promote the
establishment of catastrophe risk financing mode for tailings pond dam break.
The Chinas insurance industry starts late that the business area is narrow; risk management,
actuarial technique, payment ability management, insurance and compensation checking technique,
accumulation of experience data and other key techniques are not mature; the suiting support of
laws, systems and capital market is not perfect; and the public recognition is not high. However,
China has a lot of middle and small tailings ponds, disease reservoirs and upstream type of dams;
the surrounding areas are allocated with crowd gathering places, other industrial zones and
ecologically sensitive areas; in addition, the crustal activities of many areas are frequent, the risk of
dam break is huge, and the disaster loss may exceed the bearing ability of the insurance industry.
But the insurance industry is specialized in related businesses of risk transformation, and it can
provide powerful help for the funds management, product sales, service feedback and drawing of
risk geographic map for the catastrophe risk financing mode for tailings pond dam break in risk
evaluation, risk control, risk and insurance product management, product sales and service and
other aspects. So, the risk financing model of tailings pond dam break of China needs commercial
insurance company as the most important support.
Ensure Efficient Operation of Financing Mode through Insurance Technique
It determines insurance rate through actuarial technique. Any catastrophe risk financing
mechanism should adopt actuarial technique to determine catastrophe risk rate which is suited with
the risk standard of target risk standard to both ensure the sufficiency of rate and further ensure the
repayment ability of insurance company, and show the principle of fair and reasonable, which is
good for strengthen the motivation of disaster prevention and loss reduction, and avoid adverse
selection to some degree[10].
Different with China catastrophe risk financing researched by many scholars, tailings pond dam
break risk financing should not provide subsidy rate on the basis of actuarial rate, as the policy
holder is not the farmer or other natural person with low insurance fee payment ability, but the
mineral enterprise. Of course, in the initial stage of establishing catastrophe risk financing mode for
tailings pond dam break, in order to improve the initiative of mineral enterprises participating in
financing mode or on the basis that in the initial stage of building tailings pond for some mineral
enterprises, some objective factors (such as natural disasters caused by local environment and
climate change) exist information asymmetry, so it can give qualified mineral enterprises
appropriate insurance fee subside or the subside used for repairing, renovating and on-line
monitoring tailings pond.
In addition, use the insurance technique of coinsurance percentage to help mineral enterprises
invest small insurance amount and gain more funds used in disaster relief and recovering social
influence after disaster. Besides, audiences influenced by the disaster and local social benefit can be
safeguarded, which can better exercise the economic encouragement of disaster prevention and
reduction measures.
Highly Emphasize on Engineering Risk Prevention
Ensure the construction quality and daily maintenance of manually constructed buildings in the
250
risk area is the prerequisite for insurance industry participating any catastrophe risk financing
system and important controllable link of reducing the happening percentage of reducing
catastrophe risk. For example, if the community frequently suffered from flood wants to apply into
NFIP, it must formulate practical flood prevention plan, establish effective flood prevention facility
and repair and fix some buildings with poor flood prevention ability. And it can enter NFIP after all
engineering risk prevention measures meeting the requirement.
Tailings pond is a kind of manual debris flow with high potential energy, and it is also industrial
building with grand scale. From Table 3, it can be seen that even the tailings pond with small level,
the height of dam is around 30m. Based on the data provided by the survey report of USCOLD
(1994) and complementary UNEP (1996), 63% dike branching accidents are happened in the dam
with the height lower than 20m; the majority of dike branching accidents are happened in the
upstream type or unknown type of tailing dam; the main reasons of tailing dam accidents are
unstable slope, earthquake and overtopping, and the upstream type of dam is the same[11].
The Chinese tailings ponds are mainly small type of tailings pond at or below three level, and the
majority of them are upstream type of tailings ponds, and the construction standard and online
monitoring are not standard at all. Many Chinese tailings ponds are located in complicated places,
belonging to the natural disaster prone area of earthquake, debris flow and flood. China is a county
with large population, and the construction of many tailings ponds cannot avoid densely populated
area, industrial park or ecological sensitive area. Therefore, once the tailings ponds break, the
negative externalities are very huge. According to the research, the earthquake prevention
requirement should be upgraded from 7 to 8, and the buildings should increase the cost of
5%-10%[12]. However, from the characteristics of Chinese tailings ponds, improve the construction
standard of tailings ponds and strengthen the daily supervision, management, maintenance and other
engineering risk prevention works on tailings ponds by mineral enterprises can bring greater general
benefits to the society.

Table 3. Levels of tailings pond.

Level Full capacity V [ten thousand m3] Height of dam [m]

I Items with the upgrading condition of level pond

II V10000 H100

III 1000V<10000 60H<100

IV 100V<1000 30H<60

V V<100 H<30

In addition, we can borrow the experiences from other countries on the construction engineering
quality insurance to ensure the successful implementation of engineering risk prevention of tailings
pond, such as Construction Responsibilities and Insurance in France requires that the contractors
must shoulder corresponding quality defect responsibility for the engineering and construction
equipment for 10 years and 2 years respectively, and they must have insurance; otherwise, they
cannot contract related engineering project[13]. And Japan also has mature construction insurance
market with 4 types of construction insurance types, covering risks from construction design,
construction to installation and usage; moreover, the construction insurance market also receives the
intervention from the government. Ministry of construction will evaluate engineering contract
companies each year to provide reliable information for the construction insurance market, and
exercise differential rate for engineering contract companies with different construction qualities.
Improve insurance Participating Rate of Catastrophe Risk Financing Mode for tailings Pond
Dam Break
Due to the characteristics that the happening probability of catastrophe risk is small and the loss

251
is huge, people are easy to have fluke mind and they are unwilling to insure for catastrophe risk, so
it is a difficult problem of insurance participating rate of catastrophe risk financing system. In order
to ensure that large number of people can participate into the flood insurance plan, NFIP mainly
adopts two measures:
(1) Regulate statutory flood insurance purchase requirements. For example, if one community
doesnt take part in NFIP after it is determined as flooded area for a long time, the federal institution
will not provide any fiscal support for the community to purchase or repair buildings, or provide
certain disaster assistant. In addition, when the federal institution and lending institution
participating federal insurance or regulated by the federal provide fund or loan to assigned special
flood risk area in the acceptance insurance community of NFIP to purchase and construct, they all
require the community has flood insurance[10].
(2) Draw flood risk map. NFIP takes advantage of risk map to determine flood coverage scale
and flood insurance rate map based on flood prevention engineering condition and staff and assets
gathering condition in the flood risk area to provide sufficient information for reasonably
determining insurance rate. It can also clearly show flood risk situation to the targeted public in the
flood risk area to make them get rid of fluke mind and insure based on reasonable expectation.
For the Chinese catastrophe risk financing mode for tailings pond dam break, we can collect
many factors, such as construction type and level of tailings pond, usage and monitoring situation of
tailings pond, geographic location where the tailings pond is located, possible submerged scale of
tailings pond dam break, local geographic and climate characteristics, downstream ecological
environment and historical relic distribution situation of tailings pond, personnel density and asset
property concentration of the downstream of tailings pond and building structure, type and usage of
the downstream of tailings pond. We can also make detailed research and investigation of national
tailings ponds, draw tailings pond dam break risk area map and insurance rate map to provide as
much as reliable and comprehensive information for the division of tailings pond dam break risk
area and the determination of tailings pond dam break insurance actuarial rate. Meanwhile, use the
actual data and risk area map to improve self-protection conscious of downstream residents of
tailings pond, importance degree of local government and initiative of mineral enterprising of
entering into catastrophe risk financing mode for tailings pond dam break.
The experience of upgrading insurance participating rate of England is different from America.
Although in recent year, England is more vulnerable to be suffered from flood, the quick
development of flooded area increase assets loss amount, and insurance company of accepting
insurance of flood should pay higher payment items; from the real index, the average cost of asset
insurance of family and small enterprises is reduced instead of increasing, and the insurance
participating rate of flood insurance reaches around 80%, which owns to the high competitiveness
of England insurance industry.
If China wants to ensure the pretty high insurance participating rate of catastrophe risk financing
mode for tailings pond dam break, it needs to ensure that insurance companies participating the
financing mode have strong competitiveness, which can ensure the market order of insurance
industry can bear the change of frequency of dam break happening, which can also reduce the
average cost of related insurances and improve the initiative of mineral companies to insure.
Concept of Chinese Catastrophe Risk Financing Mode for tailings Pond Dam Break
Based on the above mechanism design, the Chinese catastrophe risk financing mode for tailings
pond dam break should be:

252
 Table 4. Concept of Chinese catastrophe risk financing mode for tailings pond dam break.
Participatin
g projects Main responsibilities

Formulate and implement related policies and supporting laws of financing mode to
ensure the executable degree, market operation mechanism and implementation
situation of financing mode; organize professional team to divide tailings pond dam
Central break risk area and draw corresponding insurance rate; build and repair public
government facilities of disaster prevention and reduction; motivate the initiative of participators
through tax stimulation and insurance fee subsidy; exercise appropriate re-insurance
of excessive loss of tailings pond dam break disaster.

Monitor safety situation of the construction and operation of tailings pond in the
residency, and the situation that mineral companies insure tailings pond dam break
Local
risk from the insurance company, and report to the central government timely to
government
revise policies and regulations of financing mode.

Cooperate with government to design financing mode as micro benefit business

insurance with policy factors, and popularize it with the method similar to
Insurance Compulsory Traffic Accident Liability Insurance. The insurance company can
company directly operate this kind of insurance type, and it is responsible for selling insurance
policy, managing insurance fee and certain proportion or share of risk responsibility
after check[14].
Cooperate with government and insurance company to popularize financing mode
Other compulsorily and continue to disperse tailings pond dam break risk through risk
financial securitization to exercise re-insurance for insurance companies participating the
institutions financing mode.

Ensure the regular design and excellent construction of tailings pond of the company,
improve monitoring facilities, precisely manage the operation situation of tailings
Mineral pond, participate in the catastrophe risk financing mode for tailings pond dam break
company and cooperate with government and insurance companies to complete disaster relief
and compensation after the happening of dam break disaster.

Conclusion
The speed of population increase and wealth gathering in China is very quick, while the
rectification speed of a large number of small, dangerous and sick tailings ponds is very slow, and
due to the severely global climate change in recent years, many places in China become the natural
disaster prone area, resulting in the huger negative social and economic influence caused by tailings
pond dam break. Up to now, the discussion and practical experience on catastrophe risk and
catastrophe risk financing around the world are bountiful, and many developed countries have
explored the whole suit of catastrophe risk management system which suits their own
characteristics. On the basis that there is close connection between the tailings pond dam break
disaster and natural catastrophe, we can learn from existed successful catastrophe risk financing
experience and combine with the condition of Chinese tailings ponds and our national condition to
set up s suit of catastrophe risk financing mode for tailings pond dam break that the government is
the dominant, business insurance industry is the main assistant, mineral companies of tailings ponds
are the main bodies of insurance participants and financing institutions and international
re-insurance industry are the assistants. However, due to China doesnt set up mature catastrophe
risk financing system, lacks supporting laws and policies and catastrophe management experiences
with Chinese characteristics to provide experience for the designer of catastrophe risk financing
mode for tailings pond dam break; therefore, this thesis tries to initially discuss the establishment of
Chinese catastrophe risk financing mode for tailings pond dam break. The time is urgent for setting
up this financing mode, and it is a long term and arduous task.
253
Acknowledgements
I would like to gratefully acknowledge the help of my supervisors, Professor Li Guoqing, and
Professor Hu Nailian, who patiently, professionally instructed me to write this paper.
The research work in my paper is affiliated with the National Natural Science Foundation of China
(Grant No.71573012).

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254
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Loess Plateau Ecosystem Services Value

Assessmentin Qingyang City as an Example
Lu XUE1,a, Hui-Chun SHI1,b,*
1
School of Geography and Environmental Science, Northwest Normal University,
Lanzhou 730070, China
a
334288135@qq.com, bmomomo0817@163.com
*Corresponding author

Keywords: Ecosystem Services; Value Evaluation; the Loess Plateau

Abstract Evaluate ecosystem service value, Make its evaluation contents included in the national
economic accounting system, correcting gross domestic product (GDP),is a good way to promote
the sustainable development of regional economy, The author use the ecosystem services value
evaluation methods provided by Costanza et al, and the Chinese land ecosystem service value per
unit area basis when scale provided by Xie Gaodi et al, estimate and comparatively analyze the
ecosystem services value of Qingyang from 2002 to 2012. The results show that the ecosystem
service value of Qingyang is RMB 19.165 billion in 2002, reduced to $18.814 billion by 2012, the
ecosystem services value has dropped by 351 million yuan in 11 years. Among them, the decrease
of scrub-grassland and river area is the main reason for decline in value of ecosystem services of
Qingyang.

Introduction
Ecosystem services refer to directly or indirectly products and services produced by the human
through the functions of the ecosystem[1].Including product, fuel, climate regulation, water
regulation, flood control, and immaterial assets, such as culture and art[2]. Ecosystem service
function refers to the natural environment conditions and utility that ecosystem and ecological
processes form and maintain to support for human survival[3]. Ecosystem services and natural
capital that provide these services to the function of the earth's life support system has a very
important role, they are directly or indirectly provide services and welfare for people, make it a part
of earth's overall economic value[4]. Starting from American scholar Costanza, etc, [5] many
scholars started the study of ecosystem services value assessment, for example, Chinese scholar Xie
Gaodi and others [6] developed a Chinese different land ecosystem service value per unit area tables,
so as to promote the academic research on the evaluation of ecosystem service value in our country.
Although in recent years about the valuation of ecosystem research has made great progress, many
domestic scholars used the estimation method by Costanza et or systems measurement put forward
by Xie Gaodi and others, evaluated the ecosystem service value from different dimensions [7-9].
But how to put the ecological value that Cannot be publicly traded in the market into real value
more intuitive, guide management decisions directly, is still the common challenges faced by
ecologists and economists.

The General Situation in the Study Area

Qingyang located in the eastern of Gansu province (106 20 '~ 106 45' E, 35 15 '10' ~ 37 N),
the loess plateau gully region in the middle reaches of the Yellow River, east, west, north three face
uplift, central and southern lower, hence "Longdong Basin". A total of 27119 square kilometers and
a population of 2.2227 million in the city (2013), comprises 1 zone 7 counties, 116 villages and

255
towns. Climate type for temperate semi-arid continental monsoon climate, the annual average
temperature between 9.5 C to 10.7 C. The southern northern rainfall excess, concentrated in July
to September, average annual rainfall is 382.9 to 602.0 mm, the ground evaporation is 520 mm,
overall showing the characteristics of drought.
As an emerging area of energy, Qingyang has the characteristics of the energy accumulation and
the ecological fragile. In the process of regional development, people blind pursue economic
interests, use the energy vulgar and predatory, caused a huge pressure for Qingyang conditions.
Wastewater discharge and castoff deposit from energy development caused cultivated land pollution,
destroyed vegetation structure, aggravate soil erosion and land desertification. Therefore, reduce the
pressure of resources and environment from industrialization and avoid damage to the ecological
system caused by short-term economic behavior, protect the ecological and economic sustainable
development, has become the important content of the city develop strategy.

Data sources and Research Methods

Data Sources
This article research institute with year of data mainly comes from the study area related
statistical yearbook, land use change data comes from Qingyang bureau of land resources.
According to Chinese land use classification system, combining with the characteristics of land use
of Qingyang, for convenience of study, in this paper, we adopt the ecosystem of the secondary
classification given by Xie Gaodi[10] , namely dry land, broad-leaved forest, shrub, grassland,
irrigation, water grass, desert, on the basis , all kinds of ecosystem area in the study area was
calculated.
Ecosystem Services Value Evaluation Model
In this paper, we use the estimation method provided by Costanza, to analyze the changes of
ecosystem service value of Qingyang, computation formula is as follows:

m n
ESV = A E (i = 1,2,..., m; j = 1,2,..., n)
i j
j ij (1)

Among this formula, ESV for ecosystem function total value in the study area, Aj for type-j
ecosystem area (hm2), Eij for the unit price of type-j ecosystem function (yuan/hm2.a), m for
ecosystem classification number, n for land use cover type.

Ecosystem Services Value Estimate of Qingyang

Select the Basis Equivalent of Ecosystem Services and Determine Value per Unit
Using the basis of the scale given by Xie Gaodi and others, modify the dry land natural unit area
food production economic value every year according to the actual situation in the study area: That
the average grain per unit area yield of 3504.73 kg/hm2 from 2002 to 2012 is the benchmark in
Qingyang, in order to achieve the price comparability, convert all the price factor into the 2012
constant prices. According to the fact that no human input economic value provided by natural
ecosystems is 1/7 times the existing unit farmland to provide production services economic value to
calculate, it is concluded that the economic value of natural food production provided by farmland
is 500.67 yuan/hm2.a in Qingyang, thus, it can be concluded that ecological value coefficient of
each type of Qingyang (Table 1).

256
 Table 1. Ecological value coefficients per unit area of ecosystem services in Qingyang city
(unit:yuan/hm2.a).
Broad-leaved
project Dry land Sherwood Steppe Scrub-grassland River-system Desert
forest
Food production 500.67 170.82 111.91 58.9 223.83 471.22 5.89
Material
235.61 388.76 253.28 82.46 329.85 135.48 17.67
production
Water supply 11.78 200.27 129.59 47.12 182.6 4883.01 11.78
Gas adjusting 394.65 1278.18 830.52 300.4 1160.38 453.55 64.79
Climate adjusting 212.05 3828.65 2491.57 789.29 3068.81 1348.86 58.9
Environmental
58.9 1136.82 753.95 259.17 1013.12 3269.08 182.6
purification
Hydrological
159.04 2791.97 1973.23 577.24 2250.07 60221.77 123.69
adjusting
Soil conservation 606.69 1560.91 1013.12 365.19 1413.66 547.79 76.57
Maintain nutrient
70.68 117.8 76.57 29.45 106.02 41.23 5.89
cycling
Biodiversity 76.57 1419.55 924.77 329.85 1284.07 1502.01 70.68
Aesthetics
35.34 624.36 406.43 147.26 565.46 1113.25 29.45
Landscape

The Total Value of Ecosystem Services of Qingyang

Using the formula (1), combined with the ecosystem types of Qingyang ecological value
coefficient of per unit area, estimate the ecological service function value, the results are shown in
Table 2.

Table 2. Total-value of ecosystem services of Qingyang city.

Unit value 2002 2012

Ecosystem System type 2 2 8
(yuan/hm ) Area(hm ) Value(10 Yuan) Area(hm2) Value(108 Yuan)
Dry land 2361.89 687796.77 16.25 697750.14 16.48
Broad-leaved forest 13518.09 378557.64 51.17 428714.31 55.25
Sherwood 8964.94 239038.43 19.64 267809.54 24.01
Steppe 2986.35 456396.95 13.63 400732.72 11.97
Scrub-grassland 11597.87 684595.42 79.41 616095.08 71.45
River-system 73987.25 14373.41 10.64 10673.39 7.9
Desert 647.93 118314.27 0.91 146453.67 1.08
Total 191.65 188.14

By the calculation results in Table 2 can be seen, from 2002 to 2012, Qingyang City, the total
value of ecosystem services from the 19.165 billion yuan down to 18.814 billion yuan, decreased by
351 million yuan. Among them, dry land ecosystem service value increased by 23 million yuan;
Broad-leaved forest ecosystem services value rose by 408 million yuan; Sherwood ecosystem
services value rose by 11 million yuan; Steppe ecosystem services value fell by 016 million yuan;

257
Scrub-grassland ecosystem services value fell by 796 million yuan; River-system ecosystem
services value fell by 274 million yuan; Desert ecosystem service value rose by 017 million yuan.

Result Analysis
The Change of Ecosystem Types Area of Qingyang (FIG. 1)
The study area from 2002 to 2012, Steppe and Scrub-grassland area decreased dramatically, dry
land area grew by about ten thousand hectares, this is the result of people destroy the grass land
clearing. For the convenience of masses, there is a series of urban, rural roads and highways in the
study area to be build, take up a large amount of farmland and wasteland. In order to solve the
problem of cultivation land by farmers, people have to cultivate a large number of grassland.
Because a large area to expand afforestation activities, a significant increase in broadleaf forest and
sherwood are. But with the oilfield development and infrastructure construction, etc, cause water
pollution is very serious, combined with the natural drought, more than four thousand hectares of
water area in the study area has been reduced in 11 years. For the semi-arid areas in loess plateau,
this number is shocking. Desert area increased slightly, description although afforestation for
environment is improvement, but the large area of grassland degradation caused by the land
desertification is completely still inevitable.
unit:103hm2
2002 2012
700

600

500

400

300

200

100

1 2 3 4 5 6 7

1 Dry land 2Broad-leaved forest 3Sherwood 4Steppe

5 Scrub-grassland 6River-system 7Desert

Figure 1. The change of ecosystem types area of Qingyang.

The Proportion Change of Value Contributed by Ecosystems (FIG. 2)

In 2002, various types of ecosystem service value in the study area accounted for the proportion of
the total value: Dry land is 8%; Broad-leaved forest is 27%; Sherwood is 10%; steppe is 7%;
Scrub-grassland is 42%; River-system is 6%; Desert is 0%( the actual is 0.47%). By 2012, the
proportion of changes have taken place in different degrees: Dry land is 9%; Broad-leaved forest is
29%; Sherwood is 13%; steppe is 6%; Scrub-grassland is 38%; River-system is 4%; Desert is
0%( the actual is 0.58%). It can be seen that Scrub-grassland and Broad-leaved forest ecosystem
services constitutes the basis of the value system in study area, followed by dry land, Sherwood and
steppe. Although the river-system in the study area ecosystem services as a proportion of the value
system is small, but the study on the semi arid zone is located in the loess plateau area, water
resources are particularly important, maintain its ecosystem service is important for the whole study
area.

258
 2002 2012
6% 0% 8% 4% 1% 9%

Dry land
Broad-leaved f orest
27% Sherw ood
38% 29%
Steppe
42%
Scrub-grassland
River-system
Desert
10%
7% 6% 13%

Figure 2. Proportion contrast of different ecosystem values accounted for the total value.

Value of Ecosystem Services Provided by the Different Service Types in Qingyang (FIG. 3)
As can be seen from the figure 3,the value of climate regulation and hydrological adjusting is
maximum, followed by gas regulation, purifying environment, soil conservation, and biodiversity,
value smallest are food production, raw materials, water supply, maintain nutrient cycling and
aesthetic landscape. Because the large value that climate regulation and hydrology regulation are
the ecosystem function non-food form the process of service, and a quantity of small food raw
materials production and production on the physical form ecological product of service, and in the
whole ecosystem services value, the process of ecosystem function and value greater than the
directly to provide the value of human ecological products. According to the market economy
theory, the unit value of the ecosystem service will increase as the ecological resource shortages,
when an irreplaceable ecological system type appear serious shortage, the unit value of it is will be
rapid growth. Must therefore be provided by the rational utilization of Qingyang the ecosystem
products and services, fully aware of the semi arid areas of ecological system provided by the huge
ecological public welfare, avoid the serious consequences caused by the unreasonable use.
unit: 108yuan
50 2002 2012

45

40

35

30

25

20

15

10

0
1 2 3 4 5 6 7 8 9 10 11

1Food production 2Material production 3Water supply 4Gas adjusting 5Climate adjusting 6Environmental purification
7Hydrological adjusting 8Soil conservation 9Maintain nutrient cycling 10Biodiversity 11Aesthetics Landscape

Figure 3. Value of ecosystem services provided by the different service types in Qingyang.

Conclusion and Discussion

In 2002, the ecosystem service value in study area is 19.165 billion yuan, reduced to 18.814
billion yuan by 2012, among them, the dry land, forest, sherwood and desert ecosystem services
value have different rate rise, grasslands, irrigation and drainage of grass ecosystem services value

259
has fallen in, and drop irrigation grass ecosystem service value is bigger. As the study area irrigation
grass is one of the basis of ecosystem service value system, half arid areas and the study area is
located in the loess plateau, drainage system for the study area and is particularly important, so the
two types of ecosystem services value reduction is the root cause of the ecosystem service value in
the study area to reduce. The results also make us realize that half arid area in the loess plateau of
Qingyang city's economic development and ecological security is facing huge pressure under the
water resources crisis severely constrained, therefore, to protect the fragile ecosystem, strengthen
the protection of irrigation and drainage, grass efforts to restore its ecological environment
construction is to protect the Qingyang ecological priority.
Because of the ecosystem and its service type distribution has the space difference, result in
different regions, different types of unit value of each service is different. In spite of this, ecosystem
service value through the form of currency prices, can make people more clear understanding the
ecosystem service value. As a result, the ecosystem services value assessment contents incorporated
into the national economic accounting system, revised gross domestic product, eliminate due to
excessive consumption of resources and damage the environment and bring the false of the national
economy growth, is to promote natural capital reasonable development decision-making basis, to
make the decision makers, producers and consumers pay more attention to ecological system,
protect the ecological environment, maintain the ecological basis for the development of social
economy, green growth is conducive to regional economy, and eventually is conducive to the
sustainable development of human beings.

References
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natural capital. Nature, 1997, 387:253~260.
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ecosystem functions, goods and services. Ecological Economics, 2002 41(3): 393~420.
[3] Daily G C. Nature's Services: Societal Dependence on Natural Ecosystems. Washington D C:
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[4] Hanwei, Sunhui, Tangya. Ecosystem service value and its evaluation method research [J].
Journal of Sichuan environment, 2005, 24 (1): 20 to 26
[5] Costanza R, d Age R, Rudolf de Groot, et al. The value of the worlds ecosystem services and
natural capital[J]. Nature, 1997, 387:253-260.
[6] Xie Gaodi, Lu Chunxia, Leng Yunfa, etc. The value of the Qinghai-Tibet Plateau ecological
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[7] Su Xiaoling, Kang Shaozhong, Tongling. The dynamic estimation method and application of
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[8] Huangxiang, Chen Yaning, Ma Jianxin. The change of typical watershed ecosystem services
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[9] Sufei, Zhang Pingyu. Environmental and economic valuation coordinated development
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geographical science, 2009, 28 (3): 471-477.
[10] Xie Gaodi, Zhang Caixia, Zhang Leiming, etc. Improve laws ecosystem services value based
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260
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Rural Tourism Resources Evaluation and Product Development

ResearchA Case Study of Lanzhou
Lu-Cang WANG1,a,*, Jing WANG1,b, Cui-Xia YAN1,c
1
College of Geography and Environment Science, Northwest Normal University, Lanzhou, China
a
wanglc007@nwnu.edu.cn,bwangjing_101314@163.com,cYcx_nwnu@163.com
*Corresponding author

Key words: Rural Tourism, Resources Evaluation, Products Development

Abstract: With the development of society and the rise of peoples living standard, the demand for
people to return to nature is more and more intense. The development of the tourism meets a golden
time. Rural tourism form abroad has reached an excellent development. Although rural tourism in
China started relatively late, the development momentum is very strong. The text, taking Lanzhou
as an example, is aiming to evaluate rural tourism resources and to study tourism products
development.

Introduction
Rural tourism attracts many tourists with its unique style. At present, although rural tourism in
our country developed to a certain extent, there are still certain gaps between China and rural
tourism development level abroad. Rural tourism resources are rich in Lanzhou, and many tourism
resources have advantageous geographical and environmental advantages. The text discusses rural
tourism in Lanzhou, and puts forward the development of tourism products and marketing
strategies.

An Overview of the Rural Tourism Resources

The Meaning of the Rural Tourism Resources
For the concept of rural tourism, many experts and scholars reach different view from different
angles; there is still no unified and complete concept so far. Because of the concept of rural tourism
involves the build of rural tourism theory system, so on the definition of the concept of rural
tourism should be scientific.
Rural tourism is also known as the city agriculture, tourism agriculture, and so on. With the
continuous research which experts and scholars at home and abroad do on the concept of rural tourism,
people widely regard rurality as the characteristics of rural tourism. The appellation, rural tourism,
is accepted by more and more people[1]. Some experts are trying to define the concept of rural
tourism from the perspective of region. In a broad sense, rural tourism refers to the cultural landscape
and the natural landscape, which has certain tourism value and which exists outside the urban area
and within the rural area; visitors are almost from the city[2]. In a narrow sense, rural tourism is a
tourism industry which is carried out with its own unique geographical and environmental advantages.
The author summed up the following common points from many experts and scholars on the
definition of rural tourism: 1. Tourism location is limited to rural areas; 2. The orientation of the
tourist is the resident living in the city; 3. Tourism activities are the use of natural or cultural
environment in rural areas for tourists to bring leisure, participation and other experience. It should be
noted that there are many similarities between rural tourism and sightseeing agricultural tourism, but
there are some differences between them, the relationship between the two is shown in figure 1.

261
 Sightseeing agricultural
Rural tourism
tourism

Figure 1. The relationship between rural tourism and sightseeing agricultural tourism.

Characteristics of Rural Tourism

The biggest characteristic of rural tourism is local. Urban residents, which live in heavy traffic
for a long time, are yearning for rural quiet and natural. So comparing with rural residents, urban
residents can find the charm of farmland lodges more easily. Therefore, in terms of the orientation
of the tourist, rural tourism should pay more attention to the highly developed commercial
metropolis, which are far from rural areas. Urban residents have little access to rural areas, so they
are more yearning to pastoral scenery [3]. On the contrary, rural tourism is not attractive to people
living in the urban and rural areas. Because of the geographical environment and climate in
different regions, such as the mountain, hills, swamp, the sea, and so on, the rural tourism in
different regions has different regional characteristics [4]. Rural tourism also has strong
participation. Rural tourism can provide opportunities for tourists to close to the nature, let visitors
truly experience the hardships of farmer labors through water planting, weeding, harvesting and
other activities. Tourists enjoy the rural scenery while also purifying their own minds, enhance their
ideological consciousness. With the development of rural tourism, rural tourism industry are
welcome to the vast numbers of urban residents and students, which are flocking to experience rural
farmers living and working environment; not only led to the development of local tourism, but also
to enhance the income of rural residents[5].
The types of Rural Tourism
Because the natural environment, economic development, historical conditions and so on are not
the same, so there are many kinds of rural tourism. According to the different tourism objects, the
types of rural tourism can be divided into: 1. Pastoral type. It mainly takes agricultural production
activities, agricultural life and cultural landscape and environment as the main tourism object. For
example: apple orchard, peach orchard, sugarcane trees, vineyards, pastures, ponds and other places.
Tourists can experience the Osprey fishing, fishing, and picking fruit fun in here. 2. Residence type.
This form of tourism takes the type of residential houses and the distribution of the villages in the
area as the main tourism object. There are mainly settlement landscape, rural dwellings, village hall
and other architectural forms, such as rings, strip, punctate, tents, earthen, water village and caves
and other settlements. 3. Compound type. As the name suggests, the object of this rural tourism
includes a variety of content, such as: rural courtyard, cultural customs, ethnic customs, as well as
the natural landscape, etc
In accordance with the degree of dependence on resources and markets, rural tourism can be
divided into: resource type, market type and intermediate type. Resource type is based on the higher
degree of dependence on resources, the characteristics are more concentrated. Market type has
higher requirements on rural tourism location, and it is more located in economically developed,
densely populated, convenient traffic areas. The intermediate type can be divided into two different
types. One is rich in resources and the market is narrow, the other is rich in resources and broad
market. According to the distance between the cities, it also can be divided into: suburban type,
remote and scenic spot.

262
The Development of Rural Tourism Resources
The Significance of Developing Rural Tourism Resources
Development of rural tourism has a strong practical significance. First, because the huge
difference between the urban and rural makes rural tourism more and more prosperous, the
development of rural tourism can strengthen ties between the rural and urban. Urban developers
optimized the rural environment, enhanced the employment rate of rural and pushed forward rural
economical development through the investment of the rural tourism resources[6]. Second, rural
tourism can reduce the pressure of urban tourism and urban environment, improve the urban
ecology, and increase the city tourist's travel options. Third, the first priority of the development of
rural tourism is to solve the problem of local transport and accommodation, so the development of
the tourism industry is good to improve all aspects of rural areas.
Principles of Developing Rural Tourism Resources
Tourism has strong dependence on the environment. If there is no limit to the amount of tourists
to rural tourism, the ecological environment and service levels in rural areas will be affected. So we
should develop tourism resources with the idea of sustainable development. Rural tourism is based
on that people become tired of the city life, and that they desire to recover the original simplicity
mentality and embrace nature. Country flavor is a major highlight of rural tourism, so excessive
development of rural tourism resources is bound to be in a departure from the road of eco-tourism
farther and farther. The development of rural tourism projects cannot pursue foreign flavor, but
should highlight the difference between local and other areas. So in the planning of rural tourism
resources should adjust measures to local conditions, not simply imitate and copy the successful
experience of other places [7].

Evaluation of Rural Tourism Resources

The evaluation of tourism resources is using a method to comprehensively evaluate tourism resources
value and the condition of the development on regional, in the basis of the rational exploitation and
protection of tourism resources. Thus, it will lay a good foundation for the development of tourism
resources. In carrying out the evaluation of rural tourism resources, we must adhere to the following
principles: (1) Static analysis and dynamic analysis must be effectively combined. Tourism industry
involves many aspects, such as the main body of tourism, the object of tourism, the tourism media, etc.
Therefore, in the evaluation, it must carry out dynamic analysis on the subject of tourism, tourism media,
that is, rural tourism and rural tourism enterprises; it must carry out the static evaluation on the object of
tourism, that is, rural tourism resources. Only in this way, the objectivity of the evaluation can be
ensured. (2) Focusing on priority should effectively combine with comprehensive investigation. Rural
tourism resources are very rich, and have diverse forms. In different periods, rural tourism resources
have different attraction to tourists. In order to attract more tourists, therefore, within a specific time
period, it should criticize and develop specific tourism resources. It gives full play to the advantages of
rural tourism resources, reduces the waste of resources.

Rural Tourism Product Development

The Current Situation and Problems of Rural Tourism Product Development
Since ancient times, Lanzhou area is the gold line of leading to the western region; at present, it is
an important transportation hub and tourist area. In the development of western region, Lanzhou is
in the position of zuo zhong si lian, and its importance is evident. At present, Longhai, Lanxin,
Lanqing and Baotou, these four railway lines intersect at Lanzhou, and with six national highway
and six provincial highway interconnected, Lanzhou and neighboring areas traffic advantages are
unparalleled[8]. In addition, Lanzhou has a large number of ethnic minorities, with a unique
advantage in the development of rural tourism products. The development status and problems of
rural tourism products in Lanzhou are analyzed below.
263
 The rural tourism resources in Lanzhou and its surrounding areas are very rich, with the
characteristics of the geographical location of scenic spots scattered and the scale of rural tourism
small. Through the understanding of scenic spots of Lanzhou and its surrounding areas, there is a
general analysis of the development status of rural tourism products in Lanzhou: First, the rural
tourism in Lanzhou area is less, and the distribution is sporadic. Although the Lanzhou area of rural
tourism resources is very rich, due to the relatively late development of Lanzhou area tourism
industry, the development of rural tourism is not enough depth in many areas. Mostly rural tourism
is simple "Nongjiale" restaurant or play mode mainly attached to larger Lanzhou scenic spots, and
the distance between the various attractions of rural tourism is far. Second, Lanzhou area rural
tourism model is numerous, but the village resort and leisure farm model is very rare, which only
appears when the rural tourism develops to a certain scale and degree. It is worth mentioning that,
Yuzhong County and Yongdeng County, which the degree of urbanization is not high, which the
image of the country is strong, with rich rural tourism resources, are the important areas that
develop rural tourism of Lanzhou area in future. Generally speaking, rural tourism in Lanzhou has
great potential for development.
In recent years, the development of Lanzhou area special tourism projects is soon, such as: peach
blossom viewing, the concert and calligraphy contest have slowly become the characteristics of
rural tourism in Lanzhou area. But we must see, the cultural connotation of rural tourism in
Lanzhou area mining depth is not enough, the level of tourism product design is relatively low. In
the future, Lanzhou should give full play to the large number of local minority areas, actively
explore various ethnic customs and culture and activities, and to promote the development of
tourism industry in Lanzhou area. In addition, Lanzhou tourism marketing efforts have yet to be
further strengthened.
Rural Tourism Product Design
Rural tourism projects have a relatively high degree of recognition among the masses. With the
improvement of living standards of urban residents in Lanzhou, the desire to travel will be stronger
and stronger. There is no doubt that rural area is their first choice, which is near the Lanzhou, and
has convenient transportation. Faced with a large number of tourists, Lanzhou rural tourism product
design should take into account the purpose of the tourists from all over the country to Lanzhou is
not the same. So the rural tourism product design should be adapted to local conditions, highlight
the local color and national color. Lanzhou area, the tourism products can be divided into:
sightseeing, vacation travel, special tourism and so on. Agricultural resource in Lanzhou area is
very rich, for some potential agricultural tourism resources development, the government of
Lanzhou should increase the intensity of investment in hardware facilities, regularly hold
agricultural products picking and tasting activities, enhance the savour of agricultural tourism
resources[9]. The Yellow River water through the city, the Lanzhou area has the advantage of
developing Water Park; Lanzhou can use this geographical advantage to establish a number of water
resort, the Yellow River carp and other wild fish as a selling point. Lanzhou area is rich in forest
resources; forest tourism projects can be established in order to attract tourists with the unique
topography and geomorphology of Lanzhou [10].
Lanzhou area rural tourism product design can be divided two types: core product design and
auxiliary product design. Core product design should be based on ecological and agricultural
sightseeing, also is to build beautiful rural scenery, and show up the traditional agriculture, thus
attracting more tourists to Lanzhou. In the design of Lanzhou rural tourism products, we should pay
attention to the effective combination of ecology and folk, which can meet the needs of vast number
of visitors returning to nature, seeking the psychological of true self, and can promote Lanzhou
rural tourism development better [11]. The design of ecological agriculture tourism can achieve the
effective combination of tourism and agriculture and animal husbandry, which will be able to get a
good operating result. Auxiliary product design is mainly on the purpose of improving the core
product, that is to say, auxiliary product design is the concomitant of core product, for coordinating
the core product. Therefore, The design of auxiliary product can start with food, housing,

264
transportation, travel, shopping, entertainment and other aspects, build a perfect system of the rural
tourism products, achieve the market share of auxiliary products and core products; so that it can
construct tourism atmosphere better, and enhance rural tourism image [12].
Tourism Product Marketing Strategy
Because rural tourism in Lanzhou started late, the marketing strategy of local tourism products
still need to be improved. Specifically, the developer should take the following several tourism
marketing strategies: First, the high speed skimming strategy. Using this strategy will increase the
price of products. Developers invest huge sums of money for publicity and promotion; the purpose
is to open the sales of tourism products and to achieve better market share. Second, the low speed
skimming strategy. Under the premise of the high price of tourism products, Developers carry out
promotional activities to rapidly achieve the purpose of occupation of the market with a low
promotional expense. Third, the high speed penetration strategy. This strategy requires using the
strategy with a low price of tourism products and higher promotional expense invested by
developers. This strategy aims at relying on low prices to occupy the market, so that developers can
get the biggest profit by selling. Forth, the low speed penetration strategy. This strategy adopt low
price of tourism products, and developers put into lower promotional costs. The purpose of using
this strategy is to make the market to accept new products as soon as possible by low price of
tourism products, and the developers obtain as much profit as possible at the same time.
According to the characteristics of rural tourism resources in Lanzhou region, the author believes
that Lanzhou rural tourism should focus on the use of the high speed penetration strategy and the
low speed penetration strategy to win at low price and high quality.

Summary
Lanzhou area has rich tourism resources, which should increase the investment of tourism
resources and publicity marketing force. It should improve quality of local tourism resources and
service quality, and pay attention to the development trend of the tourism market at the same time.
Do our best to introduce the successful tourism model of other areas, to transform in accordance
with the actual situation in Lanzhou, and to create a unique rural tourism product that belongs to
Lanzhou. At present, the evaluation and product development of rural tourism resources in China is
still in its infancy. Therefore, we should strengthen the research on rural tourism resources
evaluation and product development, and lay a good foundation for the steady development of rural
tourism in China. From the perspective of rural tourism resources, the text detailed analyses rural
tourism resources development theory and the significance of the development, and the principle of
development. On the basis of this, the paper introduces the evaluation of rural tourism resources.
Meanwhile taking Lanzhou as an example, the text analyzes the problems existing in the
development of rural tourism products, puts forward the design of rural tourism products and the
marketing strategy of tourism products, hope to provide a reference for China's rural tourism
development.

Acknowledgement
This research is funded by the Natural Science Foundation of China (41261042) and the Natural
Societal Science Foundation of China (14BSH029).

Reference
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[5] He Xiaorong. The origin, current situation and development trend of rural tourism in China[J].
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[6] Meng Rui, Liu Jiawei. The interactive relationship between the development of rural tourism
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deep[J]. Tourism Tribune, 2004, (0l): 8-9.
[8] Zou Tongqian. A study on the development model of rural tourism in China and the comparison
and analysis of Chengdu folk village and Beijing Folk Village[J]. Tourism Tribune, 2015, (03):
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[9] Tao Siyan. On Folklore Tourism[J]. Tourism Tribune, 2012, (02): 75
[10]Shui Weideng. Urbanization and rural tourism development in suburbs[J]. Journal of Shandong
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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Research on the State-owned Enterprise Reform

Bao-Qian DUAN1, Rui-Min DING1,a,*, Lei ZHAO2
1
Administration Management, North China Electric Power University, Baoding Hebei
2
Computer Technology, North China Electric Power University, Baoding Hebei
a
654418402@qq.com
*Corresponding author

Keywords: State-owned Enterprises, Problems, Countermeasures.

Abstract. With the constant improvement of our countrys social status and the rapid development
of social economy, our state-owned enterprises are required to conform to the history development
trend and make some corresponding reforms. The Eighteenth National Congress of the CPC also
points out that our nation should deepen the reform of state-owned enterprises. The reform has been
carried out for more than 30 years. During this time, our state-owned enterprises have gone through
three stages; they are the initial exploration, the system innovation and the further advance. Through
the reform, Chinese state-owned enterprises have made tremendous achievements in recent years.
Based on the studying of the SOE reforms course and its current situation, this essay analyzes the
problems in the reform of state-owned enterprises and puts forward the countermeasures.

The Process of the State-owned Enterprises Reform

The state-owned enterprises play a significant role in promoting the modernization of our country
and safeguarding the common interests of the people. They are important material base and political
foundation for the development of our Party and national business. The state-owned enterprises
reform has gone through three stages; they are the initial exploration, the system innovation and the
further advance.
The Initial Exploration Phase of the State-owned Enterprises Reform (1978-1992)
From 1978 to 1981, it was the empowerment to yield profit stage. In 1978, our nation took
Sichuan Province as an experimental site to start pilot reformexpanding enterprise autonomy.
Then it turned out that the achievements of Sichuan were remarkable. So our nation increase the
number of the test site gradually and promulgated Some Provisions of Expanding the State-owned
Industrial Enterprise Management Autonomy which regulates the content of the pilot. Since 1980,
our nation clearly adjusted the profit flow of the state-owned enterprises to ensure that the
state-owned industrial enterprises can develop healthily by order.
From 1982 to 1983, it was the stage of economic responsibility system. At the beginning of 1981,
some pilot areas began to deepen the power expansion of enterprise; then they began to carry out
economic responsibility system. In early 1981, the nation issued the proposal in which the relevant
regulations to ensure the state and enterprises relationship between responsibilities and rights and
so on were formulated.
From 1983 to 1987, it was a stage to adjust the distribution relationship between state and the
enterprise. In the year 1983 and 1984, the policy, replacement of profit by tax, was reformed. The
reformation included two aspects: to carry out the system of the coexistence of profits and taxes and
to the adjust tax rates, profits and loans.
From 1987 to 1992, it was a stage of contract managerial responsibility system. In 1987, various
forms of contractual operation appeared gradually, which played an active role in promoting the
development of China to some degree; however, it was proved at last that it was only transitional
institution at last for its own limits and our countrys inconsistent market economy.
267
The System Innovation Period of State-owned Enterprises (1993-2003)
The goal of our countrys economic system was set in 1992-1993. The nation promulgated Pilot
Measures for Joint Stock Enterprises and Regulations of Enterprise Transforming Management
System for Ownership by the Whole People. In addition, the 14th National Congress of CPC
pointed that the reform of our countrys economic system clearly targeted building the system of
socialist market economy. From then on, our countrys original enterprise system gradually became
the modern corporate system.
The modern pilot enterprises appeared and developed in 1993-1998. From 1993, some of Chinas
state-owned enterprises gradually became pilots of the modern corporate system. There were 100
modern pilot enterprises till 1995 according to statistics of the State Council. Later, Opinions on
Further Deepening and Expanding Pilot Enterprise Groups was enacted in 1997, in which the
modern corporate system was discussed in detail.
The modern corporate system was fully promoted from 1998 to 2002. In 1998, the establishment
of modern enterprise was put forward by Premier. Then the nation helped the unprofitable large and
medium-sized enterprises out of the plight within about three years. In 1999, the 4th plenary session
of the 15th CPC National Congress adopted the The Decision of A Number of Major Issues on the
Reform and Development of State-owned Enterprise, which pointed out that the state-owned
enterprises should be reformed.
The shareholding system was perfected and modern property rights institution was established in
2002-2003. These efforts still were mainly made in key industries and large key enterprises.

The Stage of Deepening the State-owned Enterprises Reform (2004-now)

It is a stage of reforming and fully promoting the management system of state assets from 2004
till now. In 2003, how to manage the state-owned assets and financial affairs of enterprises was
explained clearly in the Interim Regulations on the Supervision and Administration of State-owned
Assets of Enterprises which was enacted by the State Council. The 3rd plenary session of the 16th
CPC National Congress made it clear that the reform of state-owned enterprises should focus on
large enterprises, and make the property right diversification and governance structure as the center.
The pilot of non-tradable shares reform was implemented in 2005; the reform lasted more than one
year. At the end of 2006, it completed on the whole. During this time, the capital market went
mature gradually. Therefore, a good platform for resource allocation was given to the development
of the reform of state-owned enterprises. In 2012, deepening the reform of state-owned enterprises
and guiding non-public economic development were put forward in the Eighteenth National
Congress of the CPC. In 2016, our nation will pay more effort to make sure that the state-owned
enterprises can complete the nine key tasks well.

Problems existing in the Reform of State-owned Enterprises

The reform of state-owned enterprises in our country has been more than 30 years. During this
long time, China has made remarkable achievements. With the growing dynamism of the reform,
the state-owned enterprises total strength has been strengthened steadily. In addition, the status of
the state-owned enterprises has been improved and they play a more important role in our country
nowadays. The reform also has promoted the development of the socialist market economy of our
country vigorously. However, there are still some problems of the state-owned enterprises reform in
our country.
The first problem is that the state-owned enterprise reform is lack of internal impetus. Our nation
emphasizes that it is necessary to strengthen enterprises internal vitality on the basis of modern
enterprises system. But the internal system of our enterprises is short of dynamic. It is mainly
reflected in these four aspects: the first is that the human resources mechanism in companies is not
perfect; the second is that the average age of the state employees is a little high and the specialty
structure of them is unreasonable; the third problem lies in unreasonably and unscientifically

268
designed compensation, such as: it is not diversified in forms. The last is that efficiency and justice
cant be given dual attention in the process of reform, which leads to the social dissatisfaction.
The second problem is that the state-owned enterprise reform is lack of external governance
mechanism which has a very important position in the process of enterprises development
undoubtedly. Therefore, the state-owned enterprises should perfect the external governance
mechanism, because it is necessary for the state-owned enterprises to introduce qualified people to
guide their development, only the executive appointments of some internal talents is not enough.
When a company is acquired, merged and reconstituted, its resources cant be used effectively and
reasonably. Besides, the executives cant manage the companies well by their ability.
The third problem is the reform tasks of the state-owned monopolized industries are heavy. For
example, the state-owned enterprises are lack of independent and scientific supervision mechanism,
which leads to corruption easily. Besides, a new company is less competitive than the monopolized
industries because of lacking of human resources, capital and technology; though the restriction on
the admittance of the market economy is loosed in relevant policies and regulations during the
recent years, the position of the monopolized industries is still unshakable.
The fourth problem is that the encouragement tied mechanism of the state-owned enterprises
reform is imperfect. At present, our state-owned enterprises encouragement tied mechanism is not
very rational and effective. The administrators play a more and more important role in the tide of
state-owned enterprises reform. However, the encouragement tied mechanism of enterprises
administrators is not perfect nowadays. For example, the corporate governance structure in some
enterprises is not standard and perfect, while the restrictive mechanism is unsound.

The Countermeasures
The reform of state-owned enterprises conforms to the objective demands of the socialist market
economy. For more than 30 years, because of the reform of state-owned enterprises, our country has
developed and formed a number of large, competitive companies and groups, as well as relaxed
control over and invigorated some small and medium state-owned enterprises. In addition, the
overall quality and competitiveness of the state-owned economy have further improved. At the same
time, national assets have maintained and added value. as well as their economic benefits have
increased significantly. All in all, the reform of state-owned enterprises has made an important
contribution to the continual, fast and healthy development of national economy.
The first solution is to classify the reform of state-owned enterprises. In the state-owned
enterprises, the separation of government and enterprises, of government and funds, and of the
government and public affairs should be the main thrust of the reform. The state-owned enterprises
should be divided and classified properly according to the different economic status and functions
so that they can merge with the market economy and promote each other.
The second solution is that the modern enterprises system should be improved constantly. Our
nation should make effort to promote the reform of state-owned enterprises, advance the reform to
turn state-owned enterprises into shareholding corporations actively, improve the company
management structure, as well as drive the diversity of state-owned company equity. That is: to the
state-owned enterprises, for the internal aspect, our nation should improve their corporate
governance structure ceaselessly and strengthen their internal supervision; while for the external
aspect, our nation should perfect the external governance mechanism constantly and improve the
external competitive environment. As for the irrational compensation system, the state-owned
enterprises should make the payment form diverse and change the present phenomenon of the
unreasonably designed compensation system.
The third solution is to change the status of the state-owned monopoly industries. Because of the
different reform situations of monopoly industries, our nation should make sure that the state-owned
monopoly industries reform and the state economy progress together and refine the reform of
monopoly industries. The diversified development of the monopoly industries should be promoted
with development trend of the socialization, market-orientation of our economy.
The fourth solution is to optimize the state-owned asset management system. In the process of the
269
state-owned enterprises reform, the function transformation of the state-owned assets supervision
and administration institution should be paid more attention and the scientific nature and
effectiveness of supervision should be lifted up. Based on that, our nation should promote the
optimal allocation of the rational flow of state-owned capital, optimize the layout and structure of
the national capital and strengthen the whole function and efficiency of the state-owned economy.
The fifth solution is to provide a good environment for the reform of state-owned enterprises. Our
nation should issue some laws, regulations and policies that match the need of the reform. With the
constant development of economic society, our nation should inspire the enterprises to be
innovative and creative while deepen the reform, because innovation is the everlasting issue of
enterprises and the cultural core of excellent ones. In all, the good environment should be created
for the reform so that the reform can develop steadily and rapidly.

Conclusion
The reform of the state-owned enterprises in our country is a protracted historical process. In the
course of reform, the state-owned enterprises firmly rely on the leadership of the Party. The reform
meets the development trends of socialist market economy and makes remarkable achievements. In
the face of the rapid development of the global economic environment, we must strengthen and
improve the reform of state-owned enterprises so that our countrys economy can develop more
rapidly.

References
[1] Jia Yang, Research on the Problems of the State-owned Enterprises Reform in China, Yunnan
University, 2014.
[2] Ge Shoukun, Liang hongji, The Primitive Problems and Idea Resetting of the State-owned
Enterprises in China [J], Modern Economic Research. No. 37503:20-24(2013).
[3] Huang Sujian, Thirty Years of State-owned Enterprises Reform: Achievements, Problems and
Trends, Journal of Capital University of Economics and Business. No. 6006:5-22(2008).
[4] Rong Zhaozi, Reform of State Owned Enterprises: Achievements and Problems, The
Economist. No. 16004:5-22(2012).
[5] Zhou Fangsheng, Research on Some Problems of the Reform of State Owned Enterprises,
Shaanxi Electric Power. No. 15901:8-11(2007).
[6] Zheng Haihang, Yao Wangchun, Several Debatable Issues on the Current State-owned
Enterprises Reform, Jilin University Journal Social Sciences Edition. No. 20305:30-26(2007).
[7] Wang Zhaoming, Li Zhongqiu, Several Problems on the Current Reform of State Owned
Enterprises, Contemporary Economic Research. No. 23503: 44-50+96(2015).
[8] Fu Shue, The Achievements, Problems and Countermeasures of the Reform of State Owned
Enterprises in China, Economic and Social Development. V. 13; No. 13604: 20-22+51(2015).
[9] Chen Xiaokai, Deep Thinking of the State Owned Enterprises Reform in China, Huazhong
Normal University, 2002.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Research on Spatial-temporal Characteristics of Tourist Flow in

Lanzhou Based on Sina Microblog Big Data
Lu-Cang WANG1,a, Cui-Xia YAN1,b,*, Jing-WANG1,c
1
College of Geography and Environmental Science, Northwest Normal University,
Lanzhou 730070, China
a
wanglc007@nwnu.edu.cn,b Ycx_nwnu@163.com,cwangjing_101314@163.com,
*Corresponding author

Keyword: Microblog, Checkin Data, Spatial-Temporal Characteristics of Tourist Flow, Lanzhou

Abstract: Along with the popularization of e-commerce, the wide use of smart mobile devices and
the social networking activity is increasingly frequent, social network location service information
represented by the microblog has increased gradually and also provided new data sources and
perspectives for the study of spatial-temporal characteristics of tourist flow. In accordance of Sina
Microblog LBS (Location-based Service) checking data, the paper applied kernel density estimation
method offered by GIS to research the space-time characteristics of Lanzhou city tourism flow from
the dimension of time and space (season, time and region). The Results show that: Seasonal
variation of tourist flow is obvious, there exist great differences in winter half year and summer half
year, the double peaks feature is outstanding; April and June to August are all peaks. In the spatial
density, it has the typical structural feature, which manifest as core-periphery structure features.
From the first and fourth quarter to the second and third quarter, tourism activity expresses the
situation which spread from the urban area to rural area. And the winter half year and the summer
half year in special period are clearly convergent and divergent. In time period, tourist flow presents
the skewed pyramid structural feature. It will reach to the summit from 11:00 to 13:00; tourism
activities are throughout the most of scenic spots in Lanzhou from 11:00 to 18:00; and tourism
activities are restricted to the main urban area and newly added district where have good tourist
accommodation reception facilities from 19:00 to 10:00 at the next day. The turnout of females is
more than males, at the same time, female tourists often fasten on main city, and male tourists
prefer the suburban forest parks where they can go on rich outdoor activities , which reflecting the
tourism times preference about gender. Tourists inside the province mainly trend to main cities
scenic spots in the choice of tourism space, but they also have a definite preference about peripheral
areas tourist resources; while foreign tourists mainly fasten on main urban area and some strongly
recommended areas. From the view of tourism flow activities track, it shows up the obvious
axis-point position. Main urban area is the highly gather palace about tourist flow. Attracted by
strip urban morphology of river valley, e-w trending backbone network and main scenic spots, it
leads to the tourist flow have an obvious axis distribution character in space, among which Lanzhou
Yellow River Scenery Line is the highly collective space area for tourists. Most of tourists
behaviors trace acts as: Zhongshan Bridge-Baita Mountain Park-City God Temple-The Yellow
River Mother Sculpture-Waterwheel Museum Park. However, in external zone, because of the lack
of tourism traffic route and the highly scattered scenic spots, the tourism activity trajectory
represents the clear character of scatter. Neither main urban area nor external zone forms the closed
tourist circle.

Introduction
Along with the popularity of Internet +, the widespread use of mobile devices and the increasing
of social networking activity, the data is exploding at an unprecedented speed, the rapid development
of the era of big data and the arrival of LBS service produced before some massive high precision and
wide range of data. It not only has a profound impact on the change of economic system and human
society, but also the reconstruction of the global real space and virtual space structure [1].

271
 According to the 35th survey report of the CNNIC (The China Internet Network Information
Center), it shows that the number of China's Micro blog users reaches 249 million, the use rate of
Internet users approach 38.4%, of which the number of mobile phone micro blog users reaches 171
million, the utilization rate approach 30.7% [2] , the number of Sina Weibo month active users (MAU)
reaches 1.98 billion in March of 2015, and the number of daily active users (DAU) reaches 89
million[3]. Sina Weibo is one of the most influential and representative social tools, especially the
development of location-based services LBS applications, has become an important way to acquire
information of geographical space. Tourist flow is the foundation of tourism activities and tourism
infrastructure, it has become a tourist system central nervous system and the link for connecting
tourist source and tourist destination[4]. Such research mainly focus on the tourism flow pattern[5-7],
spatial-temporal characteristics of tourist flow [8,9], tourist flow driving force[10,11], displacement
dynamic prediction research[12,13]. Currently studies on tourism base on Weibo are quite few. This
paper using sina weibo data collected a year of tourists LBS sign in lanzhou city, with the help of
kernel density function to analyze the characteristics of lanzhou city tourist activity space, hope that
through the introduction of LBS sign-in data in such aspects as tourism research method, the analysis
of characteristics of space provides guidance for lanzhou city tourism development planning.

Researched Area
The research scope in this paper covers lanzhou city district scope, including six districts and three
counties, with a total area of 13085.6 km2.
Lanzhou is located in the geometric center of the mainland territory. It is the marginal area of
Qinghai-Tibet Plateau, Inner Mongolia Plateau and the Loess Plateau , and also transitional area of
China Eastern Monsoon Region and the northwest Non Monsoon Region. Rich tourism resources
and products are attract more and more tourists. In 2014, the number of tourists in the city break
through 33.9109 million person-time, average annual growth of 30.13%;Tourism revenues exceed
26.8 billion yuan, with an average annual growth of 30.22%.

The Sources and Processing Methods of Data

This paper takes Sina Weibo users attendance data as research object, with the advantage of open
platform of sina weibo and locomotive data collector, on the basis of structure analysis, combined
with the design data acquisition rules needed for the research topic, by searching the lanzhou
tourism keywords get the complete data flow. The data acquisition time is from September 1, 2014
to August 31, 2015, covering the whole year. In the specific data, according to the need of study ,the
Sina public platform can provide relevant data eventually collected user information (location,
gender), user attendance data (check-in time, longitude and latitude) and user sign in content
elements, collecting a total of 3416 attendance data.
In the specific course of the study, first of all we need to convert baidu open platform LBS
address information into latitude and longitude coordinates, and then collect coordinate data into
ArcMap on its properties prepared and spatial matched, GIS platform can use location data
conversion and Lanzhou City administrative divisions association graph matching. Spatial
distribution characteristics and visual expression methods using GIS spatial analysis tool of kernel
density estimation method.

Spatial-temporal Characteristics of Tourist Flow

The collecting attendance data stratified by time, longitudinal decomposition followed by 12
monthly and quarterly data, stratified by time of horizontal extraction to 4h for some period of
time will be a natural, decomposition 23:006:00, 7:0010:00, 11:0014:00, 15:0018:00, 19:0022:00 a
total of 5 time. Similarly to the 3416 valid sign in place time properties have also been horizontal

272
and vertical data extracted from each year and effective in 5 periods of the day time data.
Tourism Flows Have Obvious Spatio-Temporal Seasonal Changes
Tourism flow pattern has an obvious seasonal change in summer half year and the winter half
year, April to October is the peak season for tourism.Tourism flow spatio pattern has obvious
spatial convergence and divergence characteristics winter segregation in city, summer spread to
the suburb.Leading tourism products and tourism conditions (especially climate conditions) is the
key factos which the spatio-temporal pattern of formation of cohesion and tension.
Tourism flow showed the twin peaks features. The first peak of tourists appear in April, the
second peak appeared in July -August, it is consistent with national legal holidays.
The tourism flow has obvious spatial distribution imbalance, spatial convergence and divergence of
effect is apparent(Fig.1), the core (Main city) - edge (Outlying suburbs) characteristics significantly. In
the first and forth quarter, the tourist flow mainly concentrated in the main urban areas of Chengguan
District, Qilihe District, Anning District and Xigu District, but in outlying areas, except Lanzhou New
District and the district Xinglong Mountain in Yuzhong County have a small amount of the distribution,
the rest are belong to blank area, it is closely related the Lanzhou tourism climate and scarce winter
tourism projects . The second and third quarter as temperatures rise, the number of holidays and the
arrival of the tourist season, frequent outdoor recreation, tourism flows from the city to the surrounding
rural areas and scenic spots gradually spread. Urban climate on the heat island gradually cooling, rural
tourism products become gradually pursue outdoor choice for travelers.
Despite of the high density districts of touriest flow were gathered in Main city, there are some
differences between the four administrative districts of the aggregation intensity, tourist attractions
and tourism service facilities of the Chengguan District gathered is the highest, which was highly
segregated in the distribution area of famous scenic spots (Lanzhou Yellow River Bridge, Wuquan
Mountain, Baita Mountain, Waterwheel Garden, Zhangye Road Pedestrian Street, Zheng ning Road
Snack street); Qilihe District mainly segregated at the Yellow River Mother scenic spots; Anning
District due to the influence of area conditions, and more suburban Nongjiale ,in the summer half
year, attracted a large number of tourist flow, ,relative to industry the main function of Xigu
District, the tourism resources and environmental constraints is one of the few areas of tourist flow.
a:First quarter b:Second quarter

c:third quarter d:Fourth quarter

273
 Figure 1. Seasonal changes of tourist flow nucleation density in Lanzhou

Tourism Flow Time Change.

Within a day, from 5:00 start ,travel activity gradually increased, the period of 11:00 to 13:00
reached the peak , but in 14:00 to 21:00 basic remain stable state, 23:00 to 6:00 period of tourism
activities in the dormant state.
Based on kernel density method 5 times tourist flow distribution basicly compliance with the
overall characteristic of the core-periphery .From 23:00 to 6:00 tourist activities mainly
concentrated on Chengguan District, Qilihe District, Anning District, Xigu District, Lanzhou new
district. From 7:00 to 10:00 tourists gradually to the surrounding attractions in the District of
Lanzhou in diffusion of high density, it is related the tourists in the city of accommodation for
visitors to choose the aircraft transport. From 11:00 to 14:00 and 15:00 to 18:00 tourism flow
changes to the most obvious point appeared in the peripheral Lutusi Yamen Scenic, Tulugou Scenic,
Shifogou National Forest Park, Xinglong Mountain, which shows a significant attraction in the
outskirts of the city the main tourist attractions. From 19:00 to 22:00 tourism activities mainly
distributed in Chengguan District, especially in the Zhengning Road snack street, Xiguan cross,
Public ane, Farmers lane.

Different Characteristics of Tourist Has Differentiated Tourist Preferences

According to the tourist properties will be divided into four different attributes: male and female
tourists, Gansu tourists and foreign tourists. From the gender perspective, the number of women in
slightly is more than the male attendance number and with the arrival of the tourist season in the
higher proportion of women.
In the tourist season choice, both male and female showed a typical Sawtooth volatility
characteristics (or double peak structure ). The travel peak appeared in April and August, the
other seasons is obviously insufficient. The time from8:00 to 13:00 is mostly a women's frequent
periods of traveling, relatively less volatile men. The male tourists tourism activities are mainly
distributed in the urban area and the surrounding rural tourism; female tourists mainly concentrated
in the main urban areas. The reason is the male tourists prefer outdoor activities and female tourists
prefer leisure shopping.
Gansu tourists prefer the spring peak in April, a small peak in October, outsiders prefer summer,
a small peak in May, reached peak at 7-8 months of travel. In the 5 periods of the day, gansu tourists
prefer morning and the sign appeared a peak at 8:00-9:00, while outsiders tend to the afternoon and
night, the leisure tourists and local morning activities. The reason is the local tourist leisure
activities on the morning.

Tourist Track Has Obvious Core-Periphery Structure

For the exit flow mainly went to the Hexi Corridor(Dunhuang, Wuwei, Zhangye is the first
choice), but to the East (Xi'an) and West (Xining, Qinghai, Gansu Xiahe, Linxia) and South
(Jiuzhaigou) flow is very little. This is the future oriented of Lanzhou that highly concerned about
the regional tourism cooperation.
Lanzhou city tourism flows have significant spatial feature of the axis(Downtown)-point
(periphery) . The tourist flow mainly concentrated in urban areas while the periphery area of tourist
attraction is obviously insufficient. Main urban area is the highly gather palace about tourist flow.
Attracted by strip urban morphology of river valley , e-w trending backbone network and main
scenic spots, the tourist flow is lead have an obvious axis distribution character in space, among

274
which Lanzhou Yellow River Scenery Line is the highly collective space area for tourists. Most of
tourists behaviors trace acts as: Zhongshan Bridge-Baita Mountain Park-City God Temple-The
Yellow River Mother Sculpture-Waterwheel Museum Park. However, in external zone, for the lack
of tourism traffic route and the highly scattered scenic spots, the tourism activity trajectory
represents the clear character of scattering. Neither main urban area nor external zone forms the
closed tourist circle.

Conclusions and Policy Suggestions

To make an empirical research on the Lanzhou city tourism spatial and temporal characteristics
this paper starts from the introduction of sina Weibo LBS sign data. The results show that: In
different seasons, different time scales, different tourists attribute different spatial characteristics of
tourist flows. Seasonal variation of tourist flow is obvious, there exist great differences in winter
half year and summer half year, the double peaks feature is outstanding; April and June to August
are all peaks. It is because Lanzhou belong to the temperate continental climate(Four distinct
seasons, Summer cool and rainy, cold and dry in winter) that different quarter tourist activities
distribution appears obvious difference. In the second and third quarter tourists travel rate is higher
because of the good weather conditions, the tourist attractions in a year in the best time to visit,
tourism relates to the various parts of the tourism resources in Lanzhou City. Lanzhou winter
tourism products lack of tourism activities in the first and fourth quarter is limited to the area of the
winter tourism products development with the main city of Xinglong mountain, Anning District ski.
In time period, tourist flow presents the skewed pyramid structural feature. It will reach to the
summit from 11:00 to 13:00; tourism activities are throughout the most of scenic spots in Lanzhou
from 11:00 to 18:00; and tourism activities are restricted to the main urban area and newly added
district where have good tourist accommodation reception facilities from 19:00 to 10:00 at the next
day. Climatic conditions and holidays are important factors affecting the temporal and spatial
variation of tourist flow. Different tourists' attributes and tourism flows spatial and temporal
characteristics also have certain difference because the male tourists prefer outdoor activities and
female tourists preference for leisure shopping, the number of female tourists attendance is more
than male tourists, and female tourists mainly concentrated in the main urban areas; male tourists
tourism activities are mainly distributed in the urban area and the surrounding rural tourism. Tourist
activity characteristics of tourists in the province and other regions also showed obvious difference,
the number of tourists in the province sign peaked in April with a small peak in October, other
regions tourists in may appear small peak and the tourism peak appeared in July and August. It is
because climate is a small difference in the tourism resource of homogeneity larger, other regions
and Lanzhou climate differences larger tourism resources heterogeneity between areas of the
province is obvious. In the 5 periods of the day, Gansu tourists prefer morning and the sign
appeared a peak at 8:00-9:00, while outsiders tend to the afternoon and night. Tourists in the
province in the choice of space tourism mainly tend to urban areas of tourist attractions but the
peripheral tourism resources also have certain preferences and outsiders mainly concentrated on
urban areas and recommended a higher degree of scenic spots, which attribute to Lanzhou
peripheral regional tourism resources and product visibility is low, for the lack of leading products.
The tourist flow has shown the spatial and temporal characteristics, the reason is that the current
development of Lanzhou tourism resources and products supply can't meet the demand, and line
design is not reasonable. It should attach great importance to the following problems in the process
of tourism development in the future:
(1)How to overcome the defects of tourism seasonality. The off-season tourism development of
new tourist entertainment products focus on the development of resources and facilities in the
multi-functional advantage of off-season, make it play a role to balance the peak difference, to
extend the season. The second reasonable arrangement of tourism festivals, cultural celebration of
music, arts and entertainment, sports, business forum can put a hold in the off-season without a
strong seasonal festivals, in order to promote off-season, extend the season effect. Third, strengthen
the development of cultural tourism products.
275
 (2) How to improve the defects of lack of night tourism products. First, in the setting of tourism
projects attention the shape of the night landscape attaches great importance to the night landscape
scenic and vice King collocation focused in different regions. The set has a different theme night
landscape. Second, focus on building projects for night travel service products. Third, construction
of Lanzhou city night tourism leisure zone, the spatial pattern of development has become the
first-line multi nuclear night tourism circle.
(3) The new discovery and exploitation of tourist market. The future focus of Lanzhou city
tourism market development and promotion should be displaced to developed economy, tourists
gathered in the Beijing Tianjin Tangshan region, Yangtze River Delta and Chengdu Chongqing
region not near the Qinghai and Shaanxi.

Acknowledgments
This research is funded by the Natural Science Foundation of China (41261042) and the Natural
Societal Science Foundation of China (14BSH029).

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and Trossachs National Park, Scotland[J]. Tourism Management, 2008, 29(3) : 561- 580.
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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Public Deficits, Government Spending, and Economic Growth:

The Zhuhai Experience

Chi-Chuan LEE
School of Management, Beijing Normal University Zhuhai, Zhuhai, China
leechichuan@bnuz.edu.cn

Keywords: Government Spending, Public Deficits, Buchanan-Wagner Hypothesis.

Abstract. This paper investigates the long-run relationships between government spending, public
deficits, income, wages, and employed population, with the aim being to test the validity of the
Buchanan-Wagner hypothesis and Wagners Law in Zhuhai over the period 19852014. Our findings
provide substantive evidence in favor of the existence of a long-run equilibrium relationship among
variables. Public deficits and government spending have a significantly positive relationship
supporting the Buchanan-Wagner hypothesis. In addition, an increase in GDP per capita promotes
government spending indicating Wagner's Law does hold. Moreover, productivity in the private
sector is higher than in the public sector. Finally, crowding out effect exists in the provision of
government services.

Introduction
The assessment of demand for public services has always been an important issue in the real
economy, especially in the current context of economic uncertainty and global crisis. Increasing
expansion of public activities has attracted substantial attention within the in the literature of
economics and political science for the past several decades. From economic perspective, Law of the
Increasing Extension of State Activity postulates a positive relationship between economic
development and expansion of the public sector [1]. From political perspective, Buchanan-Wagner
Hypothesis postulates that the rapid increase in government spending is the result of high public
deficits [2].
Even though there is a considerable amount of empirical literature has been devoted to
understanding the relationship between economic development and government spending, there is no
consensus among analysts due to the inconclusive results therein [36]. Most of previous studies
attributes expending government spending to the growth of income. However, from the political point
of view, several works of the extant research have examined how deficits have affected the growth of
government expenditure [78]. Following this vein, Hondroyiannis and Papapetrou [9] use the
cointegration techniques to tests the validity of the Buchanan-Wagner hypothesis for Greece and find
evidence supporting this hypothesis. Using panel data of European countries, Christopoulos and
Tsionas [10] reach the same conclusion.
Reviewing the investigation of existing literature, most studies on this line focus on the West and
industrialized countries, with little attention given to developing countries such as China. Although
several studies investigate expending government spending in both economic and political aspect,
most of them are conducted either using whole country data or focusing on provincial data.
Government spending at the municipal level has not yet received attention. As one of the first four
special economic zones (SEZ), Zhuhai has enjoyed special policies for stimulating economic growth,
making it particularly suitable for characterizing demand for public services. How the growth of
income and public deficits affects government expenditure for decision analysis at municipal
government level, the present study bridges the gap in the literature. To the best of our knowledge,
this study is the first to investigate the relations between government expenditure, public deficits, and
income growth in Zhuhai.
277
Theoretical Structure and Empirical Model
According to Niskanen [7], the demand function for public services by the average voter-taxpayer
is considered to be of the CobbDouglas type and is specified as:

Q = a (TC ) b RGDPPC c . (1)

where is the number of units of the bundle of public services, represents the perceived share of
the unit cost of public services paid by the representative voter-taxpayer, refers to the unit cost of
the bundle of public services, and the product denotes the perceived tax price of one unit of the
bundle of public services. In addition, denotes the per capita income of the average
voter-taxpayer, and are the parameters of the model.
Although the variables and are not easy to identify, the product which represents the
public spending per capita is observable. The product which indicates the total public
spending is then defined as , where is the total population of the voter-taxpayer. The
demand function for total public spending is therefore given by

QCPOP RGEXP = aT b C (1+b ) RGDPPC c POP . (2)

Imposing the assumption that is a function of the share of public spending ( ) financed by
total government tax revenues ( ) and total number of population ( ) leads to

R 1
T = . (3)
RGEXP POP

Since the variable is not measurable, it is assumed to be a function of the average wage rate of
private sector ( ) and total population of the voter-taxpayer ( ), namely,

C = dWAGE e POP f . (4)

where are the parameters. If e > 0 , then the rate of productivity growth in public sector is
lower than those in private sector. If f < 0 , then the unit cost of public services per capita decreases
with increasing population suggesting economies of scale in the provision of government services. If
f > 1 , then a crowding out effect of public services is implied. Substituting Eq. 3 and 4 into 2 yields
the following test equation:
b
R 1 f (1+ b )
dWAGE POP
e
RGEXP = a RGDPPC c POP . (5)
RGEXP POP

After taking the logarithm and letting RRGEXP = R RGEXP be the fiscal surpluses or deficits, the
empirical model in this study can be expressed as follows

LRGEXP = Z 0 + Z1LRRGEXP + Z 2 LRGDPPC + Z 3 LWAGE + Z 4 LPOP . (6)

where Z 0 = ln ad (1+ b ) , Z 1 = b , Z 2 = c , Z 3 = e + be , and Z 4 = 1 b + f (1 + b) . If Z 1 < 0 , then

deficits would expand public spending which supports the Buchanan-Wagner hypothesis. If Z 2 > 1 ,
then income elasticities of demand for public services are greater than unity suggesting that the
Wagners Law does hold.

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Empirical Results
To perform the empirical analysis, our data consist of annual time-series for real total public
spending (RGEXP), the ratio of total public revenues over total government expenditures (RRGEXP),
real GDP per capita (RGDPPC), average real wage in the private sector (WAGE), and employed
population (POP) for the period 19852014. All data required were taken from Zhuhai Statistical
Yearbook. Before determining whether all the series employed are integrated, we examine the
integrated order of all the variables by testing for the presence of a unit root using the ADF, DF-GLS,
PP and KPSS unit-root tests. Table 1 reports the results of these unit root tests with intercept and trend
and suggests that all variables are integrated of order one. We then test for the long-run relationship
between them using the Johansen [11] multivariate maximum likelihood cointegration test.

Table 1. Univariate unit root tests.

Variable ADF DF-GLS PP KPSS
Level
LRGEXP -2.295 -1.973 -1.836 0.202 **
LRRGEXP -2.926 -2.888 -2.853 0.156 **
LRGDPPC -2.487 -2.245 -1.698 0.144 *
LWAGE -2.293 -2.298 -2.251 0.153 **
LPOP -0.964 -1.591 -0.952 0.187 **
First difference
LRGEXP -6.732 *** -5.433 *** -4.095 ** 0.115
LRRGEXP -4.787 *** -5.527 *** -5.488 *** 0.056
LRGDPPC -3.414 * -3.086 * -2.234 0.092
LWAGE -6.170 *** -6.384 *** -6.352 *** 0.116
LPOP -5.433 *** -5.314 *** -5.435 *** 0.072
Notes: *, ** and *** indicate significance at the 10%, 5% and 1% levels, respectively. The lag parameters for
ADF and DF-GLS are selected on BIC. The truncation lags are for the Newey-West correction to the others.
Since the Johansen procedure is sensitive to the choice of lag length, we employ the FPE, AIC, SC
and HQ to determine the number of lags based on our decision on the sequential modified likelihood
ratio (LR) test and various information criteria that should be used in the VAR. From the test results,
we select the optimum number of lag periods is 1.
Table 2 reports the results from testing for the number of cointegrating vectors based on the
maximum eigenvalue ( max ) and the trace ( trace ) test statistics. Both tests suggest the existence of
one cointegrating vector (r = 1) driving the series with common stochastic trends in the data.
Table 2. Johansens cointegration tests.
Model LRGEXP, LRRGEXP, LRGDPPC, LWAGE, LPOP
trace max
Rank
Statistic 1% Critical value Statistic 1% Critical value

r0 112.157 87.775 51.681 42.864

r1 60.476 62.521 27.533 36.193
r2 32.943 41.081 23.699 29.262
r3 9.244 23.152 7.044 21.744
r4 2.201 6.635 2.201 6.635
Notes: 1% finite sample critical values are constructed from the asymptotic critical values from
Osterwald-Lenum (1992) using the method of Cheung and Lai (1993). r is cointegration rank.

279
 After normalizing this cointegration vector in relation to the LRGEXP, the results of the
cointegrated coefficients of the long-run relationship equation are as follows:

LRGEXP = 2.26 LRRGEXP + 1.08 LRGDPPC 0.59 LWAGE 0.81LPOP + 17.81 . (7)

With the help of the above test equation, we derive the structural Eq. 1 and Eq. 4 in levels in
exponential form, as shown in Table 3. The major conclusion which emerge from these findings are
summarized in the following. First, the estimate of the tax price elasticity is 2.266, which indicates
that a decrease in perceived price of government services would increase the demand for government
spending. This result is highly consistent with Niskanen [7], Provopoulos [8], Christopoulos and
Tsionas [10] who have found evidence of Buchanan-Wagner hypothesis that large deficits have be
instrumental in excessive government spending.

Table 3. Structural equations in exponential form.

Regression form Equations

Long-run

Second, the income elasticity of demand for government spending is 1.080, which suggests that
there is a positive impact of the income growth on the public sectors expansion. This result supports
the viewpoint of Wagners Law. Third, the estimated coefficient of the private sector wages is 0.466
indicating that the private sector seems to be more productive compared to the public sector. Finally,
the estimated coefficient of the population 3.224 indicating that an increase in population rises the
unit cost of supplied public services.
In order to examine the long-run causal relationships among the variables, we adopt the likelihood
ratio test of Johansen [12] to investigate whether or not the variables within the system are
characterized by weak exogeneity. Table 4 reveals that weak exogeneity cannot be rejected for
LRGDPPC; against this, LRGEXP and LRRGEXP are both significantly different from zero,
indicating that a bi-directional causal relationship exists between them. On this basis, we conclude
that long-run government expenditure growth must be based on the public deficits. Furthermore, as
government expenditure grows, it can then increase public deficits.

Table 4. Weak exogeneity tests.

Variable LRGEXP LRRGEXP LRGDPPC LWAGE LPOP
2
(r ) 14.947 ** 7.700 ** 0.775 3.645 ** 9.103 **
p-value [0.000] [0.006] [0.379] [0.056] [0.003]
2
Notes: The LR test statistic adopted is the (r ) test statistic. The figures in brackets are p-values. **
denotes significance at the 5% level.

Conclusions and Implications

This paper provides a full discussion of the long-run co-movements relationships among
government spending, public deficits, income, wages, and employed population, with the aim being
to investigate the issue of whether there is a positive relationship between government spending and
public deficits supporting the Buchanan-Wagner hypothesis in Zhuhai. Moreover, we also explore
whether GDP per capita stimulates government spending suggesting the Wagners Law does hold.
Our main findings are as follows. First, we find substantive evidence in favor of the existence of a
long-run equilibrium relationship among the above variables. Second, public deficits and government
spending have a significantly positive relationship, which supports the validity of Buchanan-Wagner
280
hypothesis and indicates that large deficits produce higher government spending. Third, an increase in
GDP per capita promotes government spending, and the income elasticity is greater than unity
indicating Wagner's Law does hold. Fourth, productivity in the private sector is higher than in the
public sector. Finally, crowding out effect exists in the provision of government services.

Acknowledgement
This research was financially supported by the Zhuhai Philosophy and Social Science Foundation
(Grant Number: 2015YB011).

References
[1] A. Wagner, Finanzwissenchaft, Leipzig: C. F. Winter, 1890.
[2] J.M. Buchanan, R.E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes, New
York: Academic Press, 1977.
[3] T. Chang, W. Liu, S.B. Caudill, A re-examination of Wagner's Law for ten countries based on
cointegration and error-correction modelling techniques, Appl. Financ. Econ. 14 (2004) 577-589.
[4] D. Tobin, Economic liberalization, the changing role of the state and Wagner's Law: China's
development experience since 1978, World Dev. 33 (2005) 729-743.
[5] P.K. Narayan, I. Nielsen, R. Smyth, Panel data, cointegration, causality and Wagner's law:
Empirical evidence from Chinese provinces, China Econ. Rev. 19 (2008) 297-307.
[6] A.M. Wu, M. Lin, Determinants of government size: evidence from China, Public Choice 151
(2012) 255-270.
[7] W.A. Niskanen, Deficits, government spending and inflation: What is evidence? J. Monetary
Econ. 4 (1978) 591-602.
[8] G.A. Provopoulos, Public spending and deficits: The Greek experience, Public Financ. 37 (1982)
422-426.
[9] G. Hondroyiannis, E. Papapetrou, An investigation of the public deficits and government
spending relationship: Evidence for Greece, Public Choice 107 (2001) 169-182.
[10] D.K. Christopoulos, E.G. Tsionas, Testing the Buchanan-Wagner hypothesis: European evidence
from panel unit root and cointegration tests, Public Choice 115 (2003) 439-453.
[11] S. Johansen, Statistical analysis of cointegration vectors, J. Econ. Dyn. Control 12 (1988)
231-254.
[12] S. Johansen, K. Juselius, Some structural hypotheses in a multivariate cointegration analysis of
purchasing power parity and uncovered interest parity for the UK, J. Econom. 53 (1992) 211-244.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Trust and Financial Reports Quality-Based on the Empirical Data of

Most Admired Company in China
Sun-Lei YANG1,a,*, Bo-Yu QIN1,b, Xiong-Fei LIU1,c, Zi-Xuan ZHOU1,d
1
School of Accounting, Wuhan Textile University, Wuhan, Hubei, China
a
50495815@qq.com,b1020405855@qq.comc228327730@qq.com,d2874535517@qq.com
*Corresponding author

Keywords: Trust, Most Admired Company in China, the Quality of Financial Reports.

Abstract. Using ranking of Most Admired Company in China of 2011-2013 as substitute variable
of trust, this paper examined the impact of trust on the quality of financial reports with method of
regression analysis. The conclusion shows that the more companies are trusted, the higher qualities
of financial reports are.

Introduction
Trust always plays an important role in the economical development process; it has impact on the
stable development of society and the continual increase of economic, and meanwhile on the market
competitiveness and production efficiency of a company. For companies, trust is embodied
specifically in each of the process of companies operation and management, in other words, trust
plays important roles in every inside and outside transactions. Hence trust is not a piece of
independent resource for a company, its more appropriate to interpret it as a type of institutional
environment or institutional element. This institution exists in social overall system of cultural value,
or comes into being from contracts with long relationship and strategy choices of business
organization itself. Social overall trust structure in which a company locates will have impact on
companies decision-making and even their growth. Different from other research, in this text, we
use the ranking of the Most Admired Company in China list of 2011-2013 as substitute variable of
trust, and research the impact of trust on the quality of financial reports.
Literature Review and Research Hypothesis
Early since 1990s, economists have been researching the relationship between trust and economic
growth systematically. Butler (1999)research it and hold the view that trust influences economic
growth mainly through direct effect and indirect effect. Direct effect can be shown as influencing
the overall efficiency of economical activities and determining the scale of transaction activities [1].
Jia-zhang Zhao (2013) believes that trust has direct impact on economic growth through decreasing
transaction costs, promoting the cooperation between man and man, man and organization,
organization and organization, and meanwhile trust also contribute to solving the problem of
collective action and agent issues. Trust has indirect influencing mechanism on economic growth
including education, investment, government governance, and international trade [2]. In the later
period, the researches of trust are gradually penetrating into micro field. Jun-ping Feng (2015)
believes that social trust influences banks credit business of middle and small-sized company.
Trust can make up formal institutions deficiency, eliminate the influence of information
asymmetry to financing, and helps subjects of transactions overcome the uncertainty and mutability
existing in the social exchange relationship [3]. Through the review and settlement of the literature
above, we can see that scholars have researched different aspects of trust, and the researching field
is also very wide. But scholars have very few researches in trust in the accounting field. In this text,
we will also focus on the view of trust, and research the impact of trust on the quality of financial
reports, in order to enrich the related literature.
The amount of accruals items error of estimation is affected by accounting policies and the

282
choice of accounting policies, and the theory of information asymmetry and the asymmetry of
information of the demand of accounting information will have impact on quality of accruals. This
theory discusses the impact of unsymmetrical distribution of the two parties of the transaction or
incompleteness of one partys information on market transaction behavior and efficiency of market
operation. There are many ways to relieve the asymmetry of information, including the market
means such as information transmission, information discrimination and credit mechanism, in
addition, the approaches of government regulation. These are ways to solve the problem of adverse
selection. A company with higher degree of trust probably will have better reputation mechanism,
better trusted by the public. This trust will strengthen the distribution of the two parties of the
transaction or improve completeness of information, thus put down the asymmetry of information.
Now therefore, we put forward the hypothesis.
H1: Companies degrees of trust have negative correlation to the quality of accruals. That is to
say, the higher degrees of trust the company has, the lower the quality of accruals is, and the higher
quality the financial reports will have.

Research Design
Sample Selection and Data Sources
We choose the companies which are selected to the Most Admired Company in China of
2011-2013 as research samples. We remove companies whose data has deficiency when we do the
statistic analysis to the data. In order to ensure the availability and completeness of data, we finally
obtain 56 sample data. The financial data and financial index relating to the sample, mainly comes
from CSMAR, and the processing and analysis of data are done through the statistical software of
Excel2010 and STATA11.
The Definition of the Variable in Research
Explained Variable. Explained variable is financial reports quality (FRQ),using the amount of
accruals calculated through Jones model amended in 1995 to measure. The more the amount of
accruals is, the lower quality the financial reports will have. The amended Jones model put forward
by Jones(1995)is:

NDAt 1 REVt -RECt PPEt

TAt -1 =a1 +a 2 +a3 (1)
TAt -1 TAt -1 TAt -1

RECt shows the difference between net amount of receivable of year t and net amount of
receivable of year t-1.
Explanatory Variable. Explanatory variable is Truth, shows in dummy variable. At present, we
have no agreed measurement of companys degree of trust in domestic. In foreign country, about
the measurement of social trust, the data of the reputation of company from Fortune s every year
launching of most admired company(MAC)are used most frequently as data source. We take this
idea for example, and we find that we can witness a selecting activity of the Most Admired
Company in China jointly organized by Management Case Research Center of Peking University
and Economic Observation every year starting in 2001. We consider this list as our main data
source. In the list of the Most Admired Company in China, we sign company which is on the list as
1, or 0.
Control Variables. As for the research of the influence factor of financial reports quality,
including factors of company characteristics, we mainly select company scale, profitability,
asset-liability ratio, and so on to measure. The definition of specific variables can be listed as Table
1.

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 Table 1. The definition of variables table.
Variables The main definition
FRQ Quality of accruals, using Jones model amended in 1995 to calculate.
Dummy variable, in the list of the Most Admired Company in China, we sign
Truth
company which is on the list as 1, or 0.
Shows the scale of company, measured by companys total assets at the end of
SIZE
the term.
ROA Shows companys profitability, measured by the return on total asset.
LEV LEV shows the capital structure, measured by asset-liability ratio.
Model building. Controlling the common characteristics of influencing financial reports quality,
we use OLS regression method, to set up regression equation below.

FRQ=0+1Truth+2Size+3ROA+4LEV++ (2)

The Empirical Result Analysis

Descriptive Statistics
Descriptive statistics of sample can be seen in Table 2.

Table 2. Descriptive statistics table.

Variable Obs Mean Std. Dev. Min Max
truth 56 0.428571 0.49935 0 1
FRQ 56 0.037112 0.063019 0 0.312769
size 56 26.25774 2.529768 21.29537 30.57124
lev 56 0.746669 0.162347 0.459848 0.947385
Roa 56 0.037917 0.040804 -0.082 0.18246

From Table 2, the statistical result shows that the average of trusted company is 0.4285, meaning
that 42.85% samples have been on the Most Admired Company in China list. And the mean of
assets/liabilities ratio is 0.7467, meaning the mean of assets/liabilities ratio in sample companies is
74.67%, which is relatively high. The mean of return on assets is 0.0379, meaning that the mean of
ROA in sample companies is 3.79%, whose profitability is normal.
Correlation Analysis
Correlation analysis in variables can be seen in Table 3

Table 3. Correlation coefficient table.

truth FRQ size lev Roa
truth 1
FRQ -0.2922** 1
size 0.2111 -0.372*** 1
lev 0.1839 -0.4146*** 0.9201*** 1
Roa 0.081 0.3932*** -0.3731*** -0.45*** 1
*** p<0.01, ** p<0.05, * p<0.1

Seen from Table 3, the correlation coefficient of trust and financial reports quality is -0.2922,
which have a 5% significance level, indicating that the degree of trust has a significant negative
correlation with the accrual quality in company. But whether the influence is stable or not needs to
284
conduct further regression test. In addition, the correlation coefficient of explanatory variable is all
below 0.5, we preliminary estimate there is no collinearity researched.
Regression Test and Analysis
The relationship of trust and financial reports quality proved by the regression result can be seen
in Table 4.

Table 4. Regression results table.

VARIABLES coefficient T
truth -0.0352** -0.0154
size 0.00118 -0.00756
lev -0.103 -0.122
Roa 0.484** -0.208
Constant 0.0795 -0.123
Observations 56
R-squared 0.297
*** p<0.01, ** p<0.05, * p<0.1

From the mathematical model, the value of R2 is 0.297 and the model is good-fitting with the
sample data as a whole. The value of P in the model is 0.01, meaning the model is significantly and
has the statistical significance. From the multiple regression results, trust has a remarkable negative
correlation with accrual quality and has a 5% significance level, meaning that when the company is
better trusted, the accrual quality is smaller, and then the financial reports quality is higher. The
findings basically confirm the hypothesis 1. The companys profitability has a remarkable positive
correlation with accrual quality and has a 1% significance level, meaning that stronger the
profitability is, the higher the accrual quality is.
Robustness Test
We use Return on equity (ROE) in place of Return on total assets (ROA), and substitute accruals
calculated by 1991s Jones Model into formula 2, the result shows that trust has significant positive
correlation to financial reports quality, still confirming hypothesis 1. This indicates that the
Empirical results above have certain robustness.

Conclusion

In this paper, we considered the companies which get up to the Most Admired Company in China
of 2011-2013 as samples, and analyze the impact of degrees of trust to companies quality of
financial reports. And we can arrive at the conclusion, the more companies are trusted, the higher
qualities of financial reports are. In addition, companies profitability has remarkable negative
correlation to the quality of financial reports.

References
[1] Butler, J. J. K. Trust Expectations, Information Sharing, Climate of Trust, and Negotiation
Effectiveness and Efficiency. Group & Organization Management 24 (1999) 21738.
[2] Jiazhang Zhao. Research Progress and Enlightenment of Foreign Trust and Economic Growth
[J].Journal of Fujian School of Administration , 25(2014)108-115.
[3] Junping Feng. Mechanism study of social influence on bank credit and loan of middle and
small-sized enterprises[J].Review of Economic Research, 23(2015)94-96.

285
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Study on Investment and Finance Mechanism of New Urbanization

Jin-Ling DONG1,a,*, Jie SUN2,b

1,2
School of Economics, Xuzhou Institute of Technology, Xuzhou, Jiangsu, 221008,China
a b
Jinling8554@sina.com, xzgcxysunjie@163.com
*Corresponding author

Keywords: New Urbanization, Investment and Financing Mechanisms, PPP.

Abstract. By analysis of opportunities brought to Xuzhou, a north city in Jiangsu Province by new
urbanization, we make comparative research on the urbanization experience in some developed
countries. According to this, some suggestions are put forward to the innovation of investment and
financing mechanism of urbanization in Xuzhou.

Introduction
In March 2014, with the release of the strategic National Plan on New Urbanization, the problem
of capital allocation of the urbanization has begun to get a lot of concern. The plan will see
people-oriented urbanization as its essential value, and it is not only to raise the proportion of urban
population, but to realize the urbanization of peoples whole life including mode of production, way
of life, living space and development space. New urbanization construction is a long-term systematic
project, it can neither be achieved nor be sustainable by only relying on land finance to meet the funds
needed in the field of both construction and maintenance. So, it is urgent to establish a diversified
investment and financing system of urbanization.

The Opportunities Brought About by the New Urbanization to Xuzhou

With the Release of Jiangsu Plan on New Urbanization, Xuzhou, as a Central City will be
Stressed
In May 2014, Jiangsu New Urbanization and Urban-Rural Integration Planning was released,
which put forward clearly that Jiangsu will continue to promote the development of new urbanization
and urban-rural integration, to cultivate the region of coastal towns, towns along east Longhai areas,
and the Grand Canal, and continue to build Nanjing, SuXiChang (Suzhou, Wuxi, Changzhou), and
Xuzhou as three metropolitan areas. Xuzhou, as one of the three metropolitan areas as well as the city
along the east Longhai and the canal, becomes one of the few cross cities of Jiangsu province,
which further highlights its status as the regional central city. The New Urbanization and Urban-Rural
Integration Planning and the subsequent policies will serve as an booster for Xuzhou and the counties
(cities) around it to speed up their new urbanization and promote their industrialization.
During the process of new urbanization, Jiangsu stressed that among its big and medium sized
cities, small towns and urban agglomeration there should be scientific arrangement, reasonable
division of labor and intensive development. Thus central cities focus on enhancing their
comprehensive function. while small and medium-sized cities promote their industry carrying
capacity and give play to the role of radiating and exemplary; small towns meet the basic needs of
production and living of the residents around, and resolve the problems like supplying service to
agriculture, rural areas and farmers, developing commerce and trade circulation, and improving basic
public service ability, and the like. As there are regional differences within the province, the goals of
development of South Jiangsu, Middle and North Jiangsu are not the same. In accordance with the

286
construction of metropolitan area, North Jiangsu should speed up its new industrialization and
urbanization process, implement the strategy for the development of coastal areas, promote cluster
development of the coastal towns as well as the towns along East Longhai, and promote Xuzhous
comprehensive function as a central city of metropolitan areas.
High Quality of the Existing Urbanization Provides Much Development Space for the New
Urbanization
According to China's Urbanization Quality Report issued by Institute of Urban Environment of
Chinese Academy of Social Sciences in March 2013, Xuzhous urbanization quality level ranked 75th
of more than 286 cities. It is not only a recognition of Xuzhou achievements in urbanization
construction, but also a sign of a healthy development momentum of the urbanization construction in
Xuzhou. Over the years, Xuzhou has attached great importance to its urbanization construction,
organized the implementation of a large number of infrastructure and functional projects, vigorously
improved the public service, and created a way of urbanization with its own characteristics. In early
2010, according to different factors such as natural conditions, location characteristics, industry
foundation, and resources endowment, 114 villages and towns and two sub-district offices of Xuzhou
were divided into different types as for their development modes. A number of distinctive towns and
districts have been preliminarily formed: Kiln Bay town, an antique ancient town which has been
existing from Ming and Qing dynasties; Hanwang town, an ecological livable town which is also
famous for its historical culture; Liguo town, a big town of steel and iron introduction which is
situated on the shore of Weishan Lake; Datun town and Guanhu town which are of strategic
importance for the massive economic development; Huankou town and Liji town are important towns
for border commerce and trade.
New Urbanization will Provide Long-Lasting Impetus to Xuzhou Economic Development and
will Serve as an Important Platform and Carrier for the Transformation and Upgrading of
Industrial Structure.
New urbanization requires coordinated development of new industrialization, informationization,
and agricultural modernization. It emphasizes the optimization of integrated layout as well as the
harmonious development of big and medium sized cities and small towns. According to some
economists, China's urbanization rate will grow by 1% each year, and will drive the market demand
by 7 trillion yuan. If calculated by 1.05% increase per capita, there will be 7.35 trillion yuan market
demand a year. New urbanization will bring a variety of investment opportunities to the development
of Xuzhou in the future.
First, the transfer of agricultural population to urban residents will bring huge domestic demand.
Second, further development taken by the agricultural labor force migration to the third industry and
services will improve the capability and speed of structure transformation. Third, new urbanization
contains huge investment demand including the instruction of urban infrastructure, public service
facilities, and housing construction. Forth, through prompting institutional reform and eliminating
policy barriers huge dividend from system can be realized.

Investment and Financing Mode of Urbanization: the Experience from Developed Countries
In western developed countries, financial tools and products supporting the development of
urbanization is rich and varied. Overall, financial institutions play very important role in municipal
construction financing either in the financial system led by capital market which is represented by
Britain and the United States, or in the financial system led by banks which is represented by Japan
and Germany. Among the financing modes, credit and loan, under the basic principles of
commercial finance, relies more on medium and long-term financial support from policies. At the
same time, market-oriented financing means is very enriched and developed including municipal

287
bonds, infrastructure investment funds, asset securitization, etc. With the development of capital
markets, direct financing will play more and more important role in it.
In America, based on the developed capital market, there are diversified investors and varied
financing means for urban infrastructure construction. In the field of pure public goods, the general
corporate bonds, stocks and loans from bank can not meet the need of capital of public service sectors
and the public projects effectively, then the government would play a leading role by means like
municipal bonds and government procurement. Municipal bonds in America are classified into
general obligation bonds and revenue bonds. Revenue bonds will be used in the field of health care,
higher education, transportation (highways, toll roads, ports and airports) as well as public utilities
(water supply, sewage treatment, electricity, and gas); for some construction projects whose later
income will not be enough to repay the debt, such as the construction of exhibition centers and street
lamp systems, local governments will issue general obligation bonds, and pay back the debt with
specific sales tax, fuel tax, or a combination of the two. Asset securitization and infrastructure
investment funds are also used for urban construction financing.
In Japan, financing for urban construction mainly relies on long-term credit and local public bonds
in policy-based financial institutions and markets. In 1951, the Japanese government established the
"Development Bank" to provide long-term low-interest loans to domestic energy, transportation and
other infrastructure sectors. Most of the bank's money came from the governments fiscal investment
and financing plan, meanwhile they get money by issuing bonds in international bond market which
are guaranteed by the central government of Japan. Policy finance has not only promoted the rapid
growth of the infrastructure sector, but also had a very good guiding effect on private capital. A large
number of private financial institutions began to provide loans to the departments to which policy
Banks had invested, so that demand for capital of large-scaled infrastructure construction could be
met effectively. Local bonds in Japan includes local public bond and Local public-enterprise bond,
and local public bond is the main body of local bonds. local public bonds are issued by the local
government directly, and is mainly used in road construction, regional development, facilities for
compulsory education, public housing construction, purchase of public land, and other public utilities.
Local public enterprise bonds which are issued by some special local public enterprises and
guaranteed by local government, are mainly used for the construction of sewer, tap water and
transport, etc. Compared with the system of municipal bonds of United States and other western
countries, local bonds in Japan is not a real market-based financing system, it has a strong financial
nature of private coordination.
In South Korea, the government makes good use of private capital for infrastructure construction
by setting up national investment fund and formulating policies and regulations. Congress passed the
law of promoting private capital to infrastructure construction, then introduced the countermeasures
to expand infrastructure, and banks got interest subsidy from government. It is South Korea's central
bank who is responsible for foreign borrowings from other countries, and then lends them to domestic
corporations through development banks and commercial banks. According to relevant policies, these
banks will lend the money from both abroad and home to infrastructure companies with low interest
rates (7% ~ 8%).

Innovation of Investment and Financing Mechanism of New Urbanization Construction

Introducing Mode of PPP to Innovate Infrastructure Financing Mode

Infrastructure construction is a critical part of new urbanization. Infrastructure construction has the
characteristics of concentrated investment time and long-lasting benefit time. As governments limit
annual financial revenues can't meet the needs of huge sum of investment, other channels need to be
found. For the construction projects whose investors and beneficiaries are different, principles of He
who makes investment gets benefit should be followed. Investment of future generations can be used
by the way of government borrowing. People of contemporary and future generations have the

288
responsibility and obligation to repay the debt according to the above principles so as to share
reasonably the construction cost. PPP mode has its unique advantages in this respects.
PPP, the abbreviation for public - private partnerships, refers to the mode by which public sectors
provide public products or services through cooperating with private sectors. According to the
National Council on Public Private Partnership of America: PPP is a contractual arrangement
between a public agency and a private sector entity. Through this agreement, the technology and
assets of both sectors (public and private) are shared in the delivery of service or facility to the public.
In addition to the sharing of resources, each party should also share the potential risks and rewards.
The nature of PPP is that public sectors no longer buy assets anymore. Instead, they buy service under
certain conditions of cooperation, and service facilities will be supplied by the private sectors.
Through this mode, governments and private sectors can learn each others strengths and set up a
relationship of mutual cooperation to realize their common goals and interests, share resources and
risks, distribute income and take social responsibilities. Under the traditional financing mode,
national and local government is the main body of public projects, and tax revenue is the main source
of construction fund. Government hopes to achieve the development of infrastructure construction
and to bring economic benefits to the whole society through investment, but is under the stress of
fiscal expenditure pressures; while private sectors hope to get their returns on investment and social
effects through investment. Based on this background and the demand for a win-win situation,
public-private partnership comes into being. PPP is widely used in western countries in the process of
infrastructure management and is thought to be an effective mode that will be able to bring varieties of
public service to the government.
From the point of operation process, PPP includes establishing project, setting up a project
company, bidding and project financing, project construction, project management, project transfer,
etc. Government and private sectors set up a project company togethera Special Purpose Company
(SPC).Taking the project as main body, funds are collected according to the expected earnings of the
project as well as assets and government support measures (such as tax incentives, loan guarantees,
and the priority right to use the land alongside, etc.). The most important source of project capital is
from the contribution of SPC and loans got from commercial banks by SPC. Government departments
give charter rights to SPC with which SPC can make project development on behalf of the
government. When the project is completed, SPC has the rights of management within a certain
period of time during which SPC can recycle funds and earn profit through direct returns of the project
and benefits from government support. Rights of management will be handed over to the government
when it expires. PPP project operation mode is shown as followed:

Private sectors
Construction & Management

Concession Agreement SPC project

Share benefits

Public sectors loan

Financing Guarantee financing institution

Figure 1. PPP Project Operation Mode.

PPP has great development potential in China, and is an important form of financing channel of
new urbanization construction. In March 2014, in a PPP training program held by the Ministry of
Finance, deputy finance minister Wang Baoan pointed that, PPP is the internal requirement to
establish a modern financial system, the important measures to improve the government's public
service and support to new urbanization construction.In 2013, PPP projects in China had a total
investment of $127.8 billion, and there is still a large gap compared with the emerging markets of the
289
same type. Newly added investment of PPP in 2013 was only $700 million, while the total amount of
Quasi-municipal bond of the same year was as high as 951.2 billion yuan. If PPP successfully replaces
Quasi-municipal bond as the leading financing mode, it will have a tremendous development space,
which is also a financing mode that the Ministry of Finance is pushing hard. Distribution of size and
fields of newly added PPP Investment in recent years is shown in Fig 2. and Fig 3.

sewage treatment
transportation
electric power
energy

total

Figure 2. Distribution of Size and Fields of Newly Added PPP Investment (dollars in millions).

PPP investment scale

China Brazil India Russia

Figure 3. Chinese PPP Scale Compared with Some Major Emerging Countries.

One of the core functions of PPP is to change public goods supply mechanism. Through PPP mode,
government can be extricated from part of its debt, which can reduce some pressure, and should
change step by step from a single annual management of budget revenue and expenditure to the
financial planning of long and medium term as well as asset and liability management. The key of
PPP is to introduce private sectors to bear most of the work for public goods and services like project
financing, construction, operation, etc. Compared with the mode of public goods and services
provided by government directly, PPP will help local debt governance. It is the private sectors who
undertake most of the project financing, in exchange of franchise for public goods and services for a
long time, and the government will move part of the debt to private sectors, thus PPP mode can relieve
the incremental debt of government. The private sectors are more efficient than the financing platform
companies in project operation and maintenance. Although government departments have to take part
in financing work for new projects which increases leverage, the increased net benefits gained due to
the efficiency of project operation help digest the stock of government debt. PPP dispersed part of the

290
risks. At the beginning of the project, PPP have realized risks distribution, that is the government will
bear some risks which will reduce the risk of private capital, reduce the difficulties, and help achieve
project financing. If the project losses, government and the private sectors will share the losses. PPP is
suitable for wide range of applications, especially for large, one-off projects, such as water supply,
construction of roads, hospitals and schools. Beijing subway line 4 and the national stadium are
models of successful application of the PPP mode.
To Develop Diversified Financing Channels, and Introduce Private Capital
Introduction of private capital and innovation of financing methods can be realized by municipal
bonds, project financing, trust plan, equity financing and through the government financing platform.
(1) Issuance of municipal bonds. Municipal bond is issued by local government investment and
financing agencies, used in the construction of local infrastructure and social public welfare projects.
Its advantage is to make the best use of scattered money in society
(2) Project financing. Project financing is a new type of financing mode nowadays. The private
sectors (private economy) engage in public infrastructure projects providing public services to the
society, and recover the private sectors investment cost and reasonable profits with the project future
earnings or disposal value of assets, so as to achieve the goal of government to finance public
infrastructure projects. Project financing mainly includes BOT, TOT, ABS, BT, PPP as mentioned
above.
To Establish a Multi-Leveled, Broad Covered and Sustainable Rural Financial System
Rural credit involves the financial demand of multi-field, multi-level and multi-type: both the
general farmers microfinance demand and the large-scale capital requirement of the leading
enterprises in a certain industry are needed. Therefore, it is necessary to segment the agricultural
credit market, develop various forms of financial organization, foster diversified subjects of rural
finance, and to establish a multi-leveled, broad covered and sustainable rural financial system. First,
the existing rural financial market is to be further improved and standardized. Second, to build
community oriented financial service system, and increase production and consumption credit of
urban residents. Third, to establish a multi-leveled agricultural insurance system and provide suitable
insurance products to the suburban land-lost farmers. Fourth, to increase the ratio of financial
supporting from postal savings, and strengthen the feedback.

References
[1] Zeng Guoping, Yuan Xiaoke, Empirical Research on Relationship between China's Level of
Urbanization, Service Industry Development and Economic Growth, Research on Financial and
Economic Issues, 2010 (8).
[2] Ding Zhigang, Research on New-type Urbanization Developing Model in Jiangsu, Shanghai
Urban Planning Review, 2013 (4).
[3] Jia Kang, SunJie, The Innovation of Mode of Investment and Financing of Public-Private
Partnership Mechanism _ New Urbanization, Journal of the Party School of the Central Committee of
the C.P.C. 2014 (1).
[4] Zhang Yansheng, The Construction of Investment and Financing Support System needed by New
Urbanization, Management Academics, 2014 (3).
[5] Jiang Anyin. Innovation of New Urbanization Investment and Financing System: a case study of
Gansu, Gansu social sciences, 2013 (6).
[6] Integrated Planning on New urbanization and Urban and Rural Development in Jiangsu Province,
Xinhua Daily, May 26, 2014.
[7] Expansion of New Urbanization Investment and Financing Channels is Imperative, Xinhua,
March 5, 2014.
291
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Asymmetric Adjustments of U.S. Interest Rates

Sai-Nan HUANG1,a, Song-Lin ZENG2,b,*
1
School of Economics, Zhongnan University of Economics and Law, 182 Nanhu Avenue,
Wuhan, China
2
School of Finance, Zhongnan University of Economics and Law, 182 Nanhu Avenue,
Wuhan, China
a
sainan.huang@263.net, bsonglin.zeng@263.net
*Corresponding author

Keywords: Markov Switching, U.S. Interest Rates, Asymmetric Adjustments.

Abstract. Literature on dynamics of the term structure of interest rates supports that the adjustment
of interest rate spread may be well described by nonlinear time series models. This paper examines
the relationship between the 3-Month Treasury Bill Rate (DTB3) and 10-Year Treasury Rate
(DSG10) from January 1962 to November 2015 by employing the Markov-switching VEC model,
which allows for the asymmetric adjustment of interest rates to the long run equilibrium across
regimes. We find that the high-volatility regime more frequently exists prior to the 1990s, and the
low-volatility one occurs more often after 1990s. Secondly, with allowing for the distinct short-run
adjustment parameters in the MS-VECM setup, we find that the evidence of asymmetric
adjustments of interest rates to the long run equilibrium in difference regimes. More specifically, the
long-term interest rate adjusts more quickly towards the long run equilibrium in the high-volatility
regimes than in the low-volatility one. Moreover, by comparing the impulses response functions of
linear and nonlinear models, we find that empirical results could be misleading if the regime shift is
not taken into account.

Introduction
Modeling the dynamics of the term structure of interest rates has always been of fundamental
importance to financial economists. According to the expectations hypothesis of term structure of
interest rates, the long-term interest rates would be the average of future expected short-term ones.
Hence, the expectations hypothesis in the context of the cointegration theory suggests that the long-
and short-term interest rates should be cointegrated with parameters (1, -1). There has been a large
number of studies strived to test the term structure of interest rates applying cointegration
techniques on a linear model (see Engle and Granger (1987), Campbell and Shiller (1991) among
others). However, evidences on this hypothesis under the linear framework are mixed.
The empirical relevance of these theoretical implications has been explored by a number of
literature. Using the US treasury yield data, Bansal et al. (2004) estimate a regime-shifts term
structure model and show that the regimes in the model are related to the NBER business cycle
indicator, implying that the term structure regimes confirm and complement the real business
cycles. Some other empirical studies investigate the possible nonlinearity in term structure of
interest rates by introducing the possibility of structural breaks, or threshold (as in Pfann et al.
(1996), and Bec et al. (2008)).
In this paper we consider the possibility that a vector error corrected model with Markov
switching in the adjustment parameter (MS-VECM hereafter) would provide a better empirical
description of the term structure of interest rates. More specifically, in this MS-VEC model, i) long
run equilibrium relationship is kept in linear framework, ii) and Markov- switching dynamics are
introduced into the analysis which can be linked to the distinct adjustments across regimes. We
choose the MS-VECM to analyze the term structure of interest rates since this model is not only
292
efficiently captures the dynamics of the interest rates with different maturities in a cointegration
context, but also possesses an appealing structural form and provides economically intuitive results.
More specifically, by applying this MS-VECM, we can both study the asymmetric adjustment of
interest rates in different term structure regimes, and explore the relationship between term structure
regimes and business cycle. First, our empirical findings point out the term structure is more likely
to be in the high-volatility regime when the economy experiences a recession. Second, the long-term
interest rate adjusts asymmetrically towards the long run equilibrium across regimes, whereas the
short-term one does not. Third, by comparing the impulses response functions of linear and
nonlinear models, we find that empirical results could be misleading if the regime shift is not taken
into account.
The paper is organized as follows. Section 2 presents and discusses the methodology used in the
empirical analysis. Section 3 describes the implementations of estimating the MS-VECM and
discusses the empirical results. Section 4 concludes.

Methodology
Our analysis employs the following MS-VECM,
p 1
X t = St + k =1
S( tk ) X tk + St X t 1 + t, t = 1, 2 , K , T (1 )

where p is the lag length of the MS-VAR model, [ t | S t ~ N (0, St )] , and St is a (2 2)

positive definite covariance matrix. S t presents the unobserved state or regime variable, which is
conditional on S t 1 , independent of past X s , and assumed to follow a q-state Markov process.
From the essence of economics, two-regime, that corresponds the recession-expansion cycle, is
sufficient to describe the dynamic relationship between interest rates with different maturities, we
thus set q=2. Hence the transition probability matrix given by
pii pij 2
P=
p jj
, p ij =1
p ji j =1

where pij represents the probability of transition from i state to j state. Besides, the MS-VECM
also allows the variance matrix St to dependent on the regime variable.

Empirical Findings
Multiple Cointegration Tests
Our data set comprises monthly observations spanning from 1962:01 to 2015:11 for 3-Month
Treasury Bill Rate (DTB3) and 10-Year Treasury Rate (DSG10), coming from the Fed St Louis
Database. Table 1 reports selection criterion and multivariate cointegration tests for the VAR(p)
model for the 3-Month Treasury Bill Rate and 10-Year Treasury Rate in levels. Panel A gives the
AIC, BIC and Hannan-Quinn (HQ) information criteria. The VAR order is selected as 2 according
to AIC and HQ. Panel B reports the multivariate cointegration test of Stock and Watson (1988).
Under the null of Stock-Watson cointegration test, we test k common stochastic trends against k-r
common stochastic trends (or r cointegration relationships), finding support for cointegration
between the two series as well.
Asymmetric Adjustment across Regimes
We estimate both linear VEC and MS-VEC models over the full sample period 1962:01--
2015:11 with 647 observations. Table 1 reports estimation results and model selection criteria for
the MS-VEC model given in equations (1) and (3). The lag order is selected as 2 according to the
293
minimum AIC value in a VAR for both linear VEC and MS-VEC models. The MS-VEC model is
estimated by Bayesian Monte Carlo Markov Chain (MCMC) method with Gibbs sampling.
First, we use the likelihood ratio statistic to test the nonlinearity, in which the linear VECM as the
null hypothesis and MS-VECM as the alternative one. Since unidentified parameters exist under the
null, the LR test is not standard. The 2 p-values (in square brackets) with degrees of freedom
equal to the number of restrictions as well as the number of restrictions plus the numbers of
parameters unidentified under the null are reported, and the p-value of the Davies' test is
presented in squared brackets as well. We find that the linearity is rejected. Henceforth, we focus on
discussing the estimates of the nonlinear model; MS-VECM.One of the aims of this paper is to see
the asymmetrical adjustments toward the long-run equilibrium across regimes. According to the
estimates of the short run correction parameters, , in Table 2, we could notice that the adjustment
of long-term interest rate exhibit significantly asymmetricity across regimes. More specifically, the
speed of long-term interest rate adjustment to long-run equilibrium is quicker under high-volatility
regime than that under low-volatility one, | St = 2 |>| St =1 | . By contrast, we find no evidence
supporting the asymmetricity for short-term interest rate.

Table 1. Multivariate Cointegration Tests.

Panel A: VAR order-selection criteria
Lag(p) 1 2 3 4 6 8 10
AIC -2564.6 -2572.3 -2566.7 -2555.2 -2540.3 -2540.0 -2537.8
HQ -2565.4 -2573.7 -2568.6 -2557.7 -2543.8 -2544.6 -2543.6
BIC -2537.9 -2527.8 -2504.4 -2475.1 -2424.7 -2389.0 -2351.4
Panel B: Stock-Watson cointegration tests
H 0 : q (k , k r ) Statistic Critical value of 5%
q(2,0) -7.356 -17.40
q(2,1) -34.00*** -17.40
Note: ***,**,* represent significance at 1%, 5% and 10% levels, respectively.

Table 2. Estimation Results for the MS-VEC Model.

Model selection criteria
MS(2)-VEC Linear VEC(2)
Log likelihood -82.83726 -499.34215
AIC criterion -1695.26638 -1308.76149
HQ criterion -1713.65929 -1315.82501
BIC criterion -1630.81987 -1279.00749

LR linearity test Statistic p-value

833.00977 2 (9) = [0.0000]***
Short run correction parameters 0.02**
St =1 = (0.01)
0.003
(0.007)
0.06**
St =2 = (0.027)
0.057
(0.042)
Transition probability matrix

P
0.955 0.1088

0.045 0.8912
Note: 1.The MCMC estimates are based on 20000 burn-in and 50000 posterior draws. 2. Regime properties include
ergodic probability of a regime, observations falling in a regime based on regime probabilities, and average duration of a
regime. 3. ***,** and * represent significance at 1%, 5% and 10% levels, respectively.

294
Impulse Response Functions
We analyze the impulse responses for both linear VECM and nonlinear MS-VECM. Figure 1
reports 1 to 20 step impulse responses to 1 standard deviation shocks in linear VECM, and Figures
2 and 3 for nonlinear MS-VEC models. Impulse responses appear as black lines and 95 percent
confidence intervals appear as blue lines. Firstly, we compare the different effects of a shock to the
long-term interest rate on DSG10, between linear VECM and nonlinear MS-VECM. From the left
upper graph of Figure 1, we see that the impulse responses for the linear VECM show a significant
positive effect of long-term 10-year Treasury shock on DSG10, that is stable at about 0.35 over time.
However, The impulse responses for the MS-VECM model show an asymmetric significant positive
effect of long-term 10-year Treasury shock on DSG10, which is plotted in the upper two graphs of
Figure 2. More specifically, in low-volatility regime (regime 1) the significant positive effect of
long-term 10-year Treasury shock on DSG10 decreases over time, while in high-volatility regime
(regime 2) the effect increases over time. The asymmetricity indicates that the effect of a long-term
10-year Treasury shock on DSG10 is enhanced in high-volatility regime, or say during the recession
period. Secondly, the asymmetric effects of long-term 10-year Treasury shock on DTB3 across
regimes are confirmed as well, as can be seen clearly from the lower two graphs of Figure 2. We
find that the impulse responses of long-term 10-year Treasury shock on DTB3 are strongly larger
and stable at about 1.4 over time in high-volatility regime (regime 2), which is four times as large as
those in low volatility regime (regime1). It worth noting that the impulse responses are quite stable
in both regimes even though their magnitudes are uneven, besides the magnitude of impulse
responses from linear framework lie between them (referring to the left lower graph of Figure 1).
Lastly, the effects of short-term treasury bill shock on DTB3 are simulated and depicted.
Regarding to the impulse responses under nonlinear MS-VECM, plotted in the lower graphs of
Figure 3, their magnitudes exhibit no significant difference between two regimes at the beginning,
however, the impulse responses stay stable in the low-volatility regime but decrease in the
high-volatility regime. Moreover, the magnitudes of the impulse responses under nonlinear
MS-VECM is larger than the magnitudes of the impulse responses under linear VECM, which is
plotted in the right lower graph of Figure 1.
In sum, our findings point out the impulse response show asymmetricity across two regimes,
besides, the impulse responses from nonlinear VECM are quite different from linear one both in
magnitude and movements, implying the importance of considering two regimes when modeling the
dynamics of the term structure.
DGS10 DTB3
0.40 0.40
0.35 0.35

0.30 0.30
0.25 0.25
0.20 0.20
DGS10
0.15 0.15
0.10 0.10
Responses of

0.05 0.05

0.00 0.00
0 5 10 15 20 0 5 10 15 20

0.45 0.45
0.40 0.40
0.35 0.35
0.30 0.30
0.25 0.25
DTB3 0.20 0.20
0.15 0.15
0.10 0.10
0.05 0.05
0.00 0.00
0 5 10 15 20 0 5 10 15 20

DGS10 DTB3

Figure 1. Impulse Response of Linear VEC Model.

295
 Regime 1 Regime 2
1.6 1.6

1.4 1.4

1.2 1.2

DGS10 1.0 1.0

0.8 0.8

0.6 0.6
2 4 6 8 10 12 14 16 18 20 22 2 4 6 8 10 12 14 16 18 20 22

1.75 1.75

1.50 1.50

1.25 1.25

1.00 1.00

DTB3 0.75 0.75

0.50 0.50

0.25 0.25

0.00 0.00
2 4 6 8 10 12 14 16 18 20 22 2 4 6 8 10 12 14 16 18 20 22

Impulse Responses to 10 Year Treasury Shock

Figure 2. Impulse Response to 10-Year Shock in MS-VEC Models.

Regime 1 Regime 2
1.2 1.2

1.0 1.0

0.8 0.8

0.6 0.6

DGS10 0.4 0.4

0.2 0.2

0.0 0.0

-0.2 -0.2
2 4 6 8 10 12 14 16 18 20 22 2 4 6 8 10 12 14 16 18 20 22

1.8 1.8

1.6 1.6

1.4 1.4

1.2 1.2

1.0 1.0
DTB3
0.8 0.8

0.6 0.6

0.4 0.4

0.2 0.2
2 4 6 8 10 12 14 16 18 20 22 2 4 6 8 10 12 14 16 18 20 22

Impulse Responses to 3 Month Treasury Bill Shock

Figure 3. Impulse Response to 3-Month Treasury Bill Shock in MS-VEC Models.

Conclusion
We find empirical evidences that the 3-Month Treasury Bill Rate (DTB3) and 10-Year Treasury
Rate (DSG10) exhibit non-stationary characteristic. Since these two series are proved to be
cointegrated, thus leading to the methodology of the MS-VECM. We find that the high-volatility
regime more frequently exists prior to the 1990s, and the low-volatility one occurs more often after
1990s. Secondly, with allowing for the distinct short-run adjustment parameters in the MS-VECM
setup, we find that the evidence of asymmetric adjustments of interest rates to the long run
equilibrium in difference regimes. More specifically, the long-term interest rate adjusts more
quickly towards the long run equilibrium in the high-volatility regimes than in the low-volatility one.
Thirdly, using the NBER business cycle dates, we examine the relationship between the recessions
and the smoothed probability of a high-volatility regime identified from MS-VECM. We find it
more likely that the economy experiences a recession when high-volatility regime occurs, while the
economy is more possible stays in an expansion period when low-volatility regime takes place. This
finding suggests that the regimes in the model are related to the NBER business cycle indicator,
implying that the term structure regimes confirm and complement the real business cycles.

296
Acknowledgement
This research has been conducted as part of the NSFC Project No. 71403295.

References
[1] Bansal, R., Tauchen, G., & Zhou, H. (2004). Regime shifts, risk premiums in the term structure,
and the business cycle. Journal of Business & Economic Statistics, 22(4), 396-409.
[2] Bec, F., Guay, A., & Guerre, E. (2008). Adaptive consistent unit-root tests based on
autoregressive threshold model. Journal of Econometrics, 142(1), 94-133.
[3] Campbell, J. Y., & Shiller, R. J. (1991). Yield spreads and interest rate movements: A bird's
eye view. The Review of Economic Studies, 58(3), 495-514.
[4] Dai, Q., Singleton, K. J., & Yang, W. (2007). Regime shifts in a dynamic term structure model
of US treasury bond yields. Review of Financial Studies, 20(5), 1669-1706.
[5] Ehrmann, M., Ellison, M., & Valla, N. (2003). Regime-dependent impulse response functions
in a Markov-switching vector autoregression model. Economics Letters, 78(3), 295-299.
[6] Enders, W., & Granger, C. W. J. (1998). Unit-root tests and asymmetric adjustment with an
example using the term structure of interest rates. Journal of Business & Economic Statistics, 16(3),
304-311.
[7] Estrella, A., & Hardouvelis, G. A. (1991). The term structure as a predictor of real economic
activity. The Journal of Finance, 46(2), 555-576.
[8] Evans, M. D. (2003). Real risk, inflation risk, and the term structure. The Economic Journal,
113(487), 345-389.
[9] Krolzig, H. M. (2006). Impulse response analysis in Markov switching vector autoregressive
models. In Economics Department, University of Kent. Keynes Collage.
[10] Pfann, G. A., Schotman, P. C., & Tschernig, R. (1996). Nonlinear interest rate dynamics and
implications for the term structure. Journal of Econometrics, 74(1), 149-176.

297
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Literature Review and Policy Analysis of Carbon Tax

Jie QI
Postdoctoral Programme of China Center for Industrial Security Research, Beijing Jiaotong
University, China
qqijjie@163.com

Keywords: Carbon Tax; Policy Analysis; Low Carbon Society

Abstract: This paper is based on the carbon tax policy as the main research content with the
literature review of the previous studies and the new research methods. The paper hopes to be able
to out of the shackles of the past, and study the carbon tax policy to fill the gaps in research from
the perspective of policy analysis. In this study, we need to put forward a "China's carbon tax policy
and sustainable development" analysis framework. This framework mainly consists of three parts:
one is the analysis of China's carbon tax policy choice model, namely the influence factors of
China's carbon tax policy; another one is the influence model of China's carbon tax policy on
economic and social influence and effect; the last one is the standard model of China's carbon tax
policy which is how to do in order to achieve the goal of China's carbon tax policy and sustainable
development.

Introduction
Elinor Ostrom opens with "almost every week there is a big news about the destruction of
precious natural resources" in the book "governing the common,. China's rapid economic
development brings the high cost of environmental damage. In recent years, government
departments and academic circles have begun to pay more attention to such problems.
Sustainable development and rapid economic growth pace is an ideal choice for the present stage
of China's development road, the increasingly serious environmental problems and energy shortage
need China to re-examine current rapid economic growth. We should find ways so as to ensure the
moderate economic growth and to keep the rational use of energy resources and sustainable
development.
The main content of this paper is China's carbon tax policy according to the domestic and foreign
research content, and establish new research methods. The goal of this paper is to hope that the
specific framework of China's carbon tax policy research can be given through the policy analysis
in order to make some suggestions for the realization of China's low carbon targets.

Literature Review on Carbon Tax

For the study of carbon tax, domestic and foreign scholars have given some attention, and the
actual study of carbon tax policy in various countries began to emerge. According to the World
Bank estimates, the annual adaptive costs will reach 100-400 billion (World Bank, 2006).
Carbon tax, in fact, is a tax on carbon dioxide produced by burning fossil fuels, which can reduce
the use of fossil fuels and thus lead to the use of alternative fuels. It is a method of reducing the cost
of carbon dioxide emission reduction. (Nordhaus, 2007). From the perspective of welfare
economics, the global climate is a public product. The theoretical basis of the global climate
problem caused by carbon dioxide emissions is the external diseconomy (Jinnan Wang, 2008).
According to the study of domestic and foreign scholars on carbon tax research content, it can be
divided into the following aspects:

298
From the Theoretical and Empirical Point
Gu Liubao thinks carbon tax can increase the cost of doing business in the short term (2015), but
in the long term can improve the production efficiency of enterprises. Wang Shufang (2005)
conducted a comprehensive summary, from the domestic and foreign carbon tax policy, and
embraced the impact of energy conservation and emission reduction in-depth review. Yuan song
Zhao Kai (2013) thinks that carbon tax can lead to a low-carbon consumption structure. Not only
that, for China's current industrial structure, carbon tax levy can optimize the secondary industry,
stimulate the development of the tertiary industry. Chen Hongmin (2012) from the point of view of
the game analyzes carbon tax development prospects, gets the conclusion which is avoiding "carbon
leakage risk, according to our country actual situation, in order to design a carbon tax system in
line with China's national conditions. Jiang Zhen (2012) from the development of low carbon
economy and the development of a carbon tax, puts forward China's current tax system in the
carbon tax, proposes the implementation of China's carbon tax benefits, and he puts forward the
management system in the design of the carbon tax system needs to pay attention to, at the same
time the carbon tax revenues of local taxes should be given, which can prevent the collusion of the
local government and enterprises. This is different from the previous central- local tax sharing.
From Local Practice
Johansson Bengt proposed Sweden's carbon tax system is from 1991,as a supplementary energy
tax levy. Now, the carbon tax is conducive to the use of Swedish bio- combustion heat. At present,
50% of the energy comes from thermal energy. In addition, Japan Ministry of environmental
protection discusses carbon tax are introduced in detail, including the application background, the
mechanism, tax issues and other support policies. Among them, the carbon tax for 2012 reached 39
billion 100 million yen, then there will be 262 billion in 2016 . At the same time, these taxes and
fees will be used to control the emission of carbon dioxide, such as the development and application
of new energy and so on. Zimmer Michael argues that carbon taxes are more effective than carbon
emissions trading. Jonathan L. Ramseur and Larry Parker (2009) from the three aspects of the
carbon tax advantages, disadvantages and execution analyzed this tax, including the use of levy tax
object, tax rate and tax. Jonathan L. Ramseur and Jane A. Leggett (2012) enrich the previous studies
in the follow-up study , think carbon tax policy should include the following aspects: appropriate, is
to get the ability of certain taxes; efficiency, is to increase the economic efficiency of
production ;fairness; maneuverability; political feasibility. Adele C. Morris emphasizes the
American consciousness of great powers, and should be a dialogue with other countries, which
include administrative management and technology in terms of carbon pricing to help other
countries in the formulation of a carbon tax policy. Gilbert Metcalf and David Weisbach (2009) that
a carbon tax is better than a carbon emissions trading right . The results show that good carbon tax
can contain 80% of America's carbon dioxide emissions, and cover 90% of the medium for extra
income.
Zhang Xiaoying, Zhong Jinwen (2010) believes that in the process of China's carbon tax levy we
should pay attention to the determination of the carbon tax rate, to the choice of the timing of the
introduction, to focus on the setting of the tax exemption regulations and the formation of the policy.
Wang Min, Wang Jun (2011) proposed deeply the object should is the user of fossil fuel companies
and consumers, at the same time maximize the reflects the reduction of the marginal cost for the
energy intensive industries and low income groups to give preferential policies according to the
fossil fuel carbon content. Cheng Yushi (2012) believes that the establishment of China's carbon tax
system involves many aspects of resistance: the resistance of the reform of the relevant economic
sector, China's central and western regions and the constraints of science and technology. Yang
Mengzhu (2014) thinks that China's carbon tax should be embedded and not suitable to become
independent tax.Yang Mengzhu (2014) believes that the implementation of China's carbon tax is
too early, and it needs many up porting measures. Wang Wenge (2012) believes that China's energy
conservation and emission reduction should be the main goal of carbon tax design using different
energy classification management, but also need to co-ordinate other means to achieve the goal.

299
Deng Wenjuan (2012) argues that the attribution of the carbon tax should be given to the central
and local governments according to 7:3 and also pay attention to prevent carbon tax in China to be a
"quasi tax", and administrative means. Su Ming (2009) thinks that tax is suitable for the quantitative
of tax in the short term carbon, he proposed to need different tariff and differential tax rate.
Xue Yanhua (2013) gives the introduction of Australia's carbon tax bill "clean energy act", makes
reference from the tax levy object, range, price standards in order to the establish China's carbon
tax. Zhang Wei, Zhu Lei (2011) put forward the carbon tax levied, the tax rate comparison, revenue
cycle, ex-post evaluation and tax relief of Nordic countries, and think that China's carbon tax should
be with local characteristics, rather than a direct copy. Deng Rui (2013) according to the practice of
foreign carbon tax system puts forward to not only the main and auxiliary combination in the
carbon tax, but also improving the carbon tax to the legislative level. Yang Yang, Du Jian
(2010)according to the enlightenment of EU countries and China get the conclusion that a carbon
tax need to grasp the opportunity to advance steadily and flexibily, and to reflect the differences in
tax rates, and to get a reasonable choice of the collection of links considering the overall solution of
other supporting . Wang Chun (2010) gives the carbon tax policy points to inner system itself, outer
supporting system and the supervision and evaluation system, and the supervision and evaluation
system need regional organizations, national environmental departments and industry enterprises.
Zhou Jian, He Jiankun (2008) introduced carbon tax object, tax rate, tax purposes, tax incentives,
emission reduction effect from five countries. Jiang Kejun(2009) analyzed the environmental tax
and carbon tax in foreign countries from the perspective of tax system, and explained the macro
economic effects of carbon tax. Shang Kai (2009) made a research and analysis of the carbon tax,
and the social economic analysis of the simulation results.
From the Comparison between Carbon Emission Trading Rights
Shen Chen (2012) makes the contrast between he carbon tax and carbon emissions trading system
from the theoretical basis and practical effects. The carbon emissions trading is likely to lead to
monopoly but to control carbon quotas; and carbon tax has convenient operation but is not easy to
control quotas. Qiu Lei (2013) makes a comparative study between carbon tax and carbon
emissions trading. Huang Haiyan (2012) believes that we need to accelerate the joint use of carbon
trading and carbon tax, with the case of the introduction of Australia,and to explore the way out of
china. Kuang Dan (2014) builds a carbon tax and carbon emissions trading CGE model to analyze
these two systems.
From Comparison with Other Systems
Li Nuyun, Lu Ji (2012) makes comparison between forestry carbon sinks and carbon tax system,
and makes the enterprises should speak of forestry carbon sequestration before placing the carbon
tax, which funded afforestation to obtain much more carbon credit metrics, and gives relief
considerable carbon tax. Wu Rengerile (2011) analysis the effect of the carbon tax for public
welfare, thinks that the government should strengthen supervision to prevent the shifting of burden,
should also establish a compensation mechanism for the public and reduce the corporate tax.
From Legislation
Xiong Bin (2011) believes that China's carbon tax legislation in China has the feasibility, and the
carbon tax legislation is the need to transform the economic development model in order to improve
the environment and the tax system. Sun Ruirui (2012) believes that China's carbon tax is nominal,
and the essence of China's carbon tax is a pollution tax, is an indirect tax, is a kind of specific
purpose of regulation tax. Wang Chi, Fan Cenyao (2010) believes that the need to establish a fair
and reasonable low carbon economy on the basis of the establishment of the basic rights of citizens
of carbon emissions.
To sum up, domestic and foreign research for a carbon tax is divided into some of it. The
summary for the study of carbon tax is not very comprehensive, and even structural is not very clear.
The paper is in the hope to be out of the shackles of previous studies as carbon tax policy to be the
main research contents from policy analysis point of view .
300
New Research Methods: Policy Analysis
Unlike previous foreign experience introduction and the contents of the specific policies, this is a
new study angle of view to discuss this problem trying to construct the analysis framework of a
carbon tax policy and sustainable development, and to describe the status quo of China's carbon tax
policy system, evaluate the effect of a carbon tax policy, analysis of China's carbon tax policy
system in the presence of obstacles. It discusses design principle and basic logic, and puts forward
policy suggestions to improve the system of carbon tax policy in China with the help of the
experience of carbon tax policy system in western countries.
The paper hopes to be able to out of the shackles of the past, and study the carbon tax policy to
fill the gaps in research from the perspective of policy analysis . In this study, we need to put
forward a "China's carbon tax policy and sustainable development" analysis framework. This
framework mainly consists of three parts: one is the analysis of China's carbon tax policy choice
model, namely the influence factors of China's carbon tax policy; another one is the influence
model of China's carbon tax policy on economic and social influence and effect; the last one is the
standard model of China's carbon tax policy which is how to do in order to achieve the goal of
China's carbon tax policy and sustainable development.
The study will follow Herbert Alexander Simon on the distinction between "empirical research
and normative research", James Buchanan's "under the rules and rules of selection, Elinor
Ostroms institutional analysis and development (IAD) framework, combined with the policy
process theory and policy analysis method, attempts to put forward a Chinese carbon tax policy and
environmental sustainable development framework in order to explore the selection model of
Chinese carbon tax policy (Figure 1),influence of carbon tax policy model (Figure 2) and the carbon
tax policy specification model (Figure 3), selection model and influence model is the empirical
orientation, while the standard model is the ethical orientation which still needs to verify the
influence model.
Figure1 constructs the model for the selection of a China's carbon tax policy according to the
framework of institutional analysis and development (IAD),and its core is to explore the logic
behind the carbon tax policy selection, namely what factors will push carbon tax policy on the
agenda. The core idea is the carbon tax policy is a product of the interaction between different
actors under certain decision-making scenarios, there are many factors will influence the results of
policy choice, including both internal variables (actors in the determination of policy scenarios ),
including external variables (community value, decision rules, carbon tax status, economic level
and the international diffusion, etc.)

Figure 1. The selection model of Chinese carbon tax policy.

301
 Once the carbon tax policy has been introduced, playing an effective role will become a key
issue, which needs to be assessed. Policy evaluation has become a special subject, and the more
stringent policy assessment science needs to use the experimental or quasi experimental research
design to assess the impact of policy on the target population. In short, we need to use a more
scientific approach to assess the impact of policies on the social economy. Figure 2 using logic
model to evaluate the impact of carbon tax policy which embrace several links , including its input,
activity, results and impact.So policy impact assessment is find the net effect, which is convenient
for further policy options to provide policy recommendations. When a carbon tax policy cannot
achieve the desired effect, we need to find out the reason which is the failure of the theory (carbon
tax policy itself is not scientific), or the implementation of failure (carbon tax policy is difficult to
be well implemented)?

Figure 2. The influence of carbon tax policy model.

The last one of "China's carbon tax policy and sustainable development" analysis framework needs to
answer such a question: if we want to realize the sustainable development and what kind of carbon tax policy
system do we need? How can we advance this reform? This involves the issue of policy design and reform
path, but also the last part of the research report. Normative model needs to consider the policy issues, policy
knowledge, policy environment and policy objectives and other aspects of knowledge.

Figure 3. The carbon tax policy specification model.

302
Carbon Tax Policy Layer
From the aspect of public policy, the carbon tax policy is product of the interaction between
different actors under certain decision-making scenarios, and many factors will influence the results
of policy choice, both internal variables (actors in decision situations), including external variables
(common value, decision rules, carbon tax status, economic level and international diffusion, etc.).
The internal actors in the decision-making scene are the main body of the carbon tax policy
implementation. In fact, the external environment is the impact of the external environment of
China's carbon tax policy. If China's industrial restructuring, including the first industrial base is not
stable, the proportion of the second industry is too large, the third industry development. With
awareness of environmental protection is bigger, the introduction of a carbon tax environment of
public opinion growth and other national carbon tax policy for China's influence and reference,
China's current with the support of energy-saving environmental protection and sustainable
development efforts increase to form a good policy environment and so on.
But so far, China still has no carbon tax policy, and it is difficult to make policy judgments, but it
can be seen that the carbon tax policy is difficult to implement. Is related to the interests of the
relevant economic sectors or the actual situation and the technological gap. The regressive nature of
carbon tax will affect the distribution pattern of different income groups. In March this year, the
Minister of finance Lou Jiwei made it clear that China will not set up a carbon tax alone. But will be
the carbon tax arrangements in the current preparation of the tax , such as environmental taxes or
resource tax. But he said that this year the scope of resource tax reform is not involved in the
expansion of carbon tax.
At present, from China's actual situation, the carbon tax policy design should obey the following
rules: according to the principle of local conditions and the principle of slow promotion. In the
formulation of the specific policies of the carbon tax, there are the taxpayer (enterprise, individual),
the collection of links (production and consumption), tax rate, preferential, management system and
other aspects to discuss. Not only that, but also requires a series of carbon tax related platforms,
such as carbon emissions information disclosure and management, carbon emissions related risk
accounting.
Therefore, according to the above content, China's carbon tax policy system needs to include
three aspects, namely, the inner layer of the policy, policy outer layer, policy guarantee layer. As
shown in the following figure:
Reasonable operation of the inner layer of the carbon tax policy needs the policy support at the
outer layer, also for a carbon tax policy is in need of supervision and management. In the guarantee
policy layer, policy can meet the main goal, whether conforms to the economic level, the legal level
and policy level of efficiency, the rule of law and accountability.

Summary
Carbon tax policy avoids achieving a carbon lock and carbon dependence, to help the final
realization of the structure of low carbon consumption and optimize the industrial adjustment.
Adhere to the carbon tax policy constraints and incentives and be with the carbon emissions trading
system. In the establishment of carbon tax policy, it needs to design more than three levels of
content, which embrace good interaction with each others.

303
 Figure 4. The layer of carbon tax policy.

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[7] Chen Hongmin. The prospect of China's carbon tax in the international game of coping with
climate change [J]. Journal of Jiangsu University, 2012 (06).
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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

A Study of Purchase Decision and Its Affecting Factors for Mobile

Shopping Among Smartphone Users
Ai-Min ZHANG1,a, Wen-Yue LIU1,b,*
1
School of Business, East China University of Science and Technology, Shanghai, 200237, China
a
amzhang@ecust.edu.cn, bwenyue0216@163.com
*Corresponding author

Keywords: Mobile shopping, Smartphone users, Purchase Decision, Affecting factors.

Abstract. With the popularity of Smartphones and the improvement of shopping experience,
mobile shopping has become a fashion. In the mobile terminal business market, mobile shopping is
developing rapidly, and the mobile shopping has become an important supplement to the online
shopping market. Whether mobile shopping will replace the PC online shopping has become a hot
topic in the industry. Considering these, this research will adopt interview, questionnaires and server
log files to collect data, and explore purchase decisions for mobile shopping among Smartphone
users in China. We expect to find the factors affecting mobile shopping among Smartphone users
and the relationship between these factors and mobile shopping decisionmaking model. We expect
that the findings have important significance on the design of mobile purchase website and online
marketing strategy making.

Introduction
With the development of the computer and internet technology, e-commerce has become a new
economic model. As a new way of shopping, online shopping attracts more and more consumers
(individual consumers and institutional buyers). According to the CNNIC data, until to December
2013, the transaction amount of online shopping market in China reached 1.85 trillion Yuan, an
increase of 40.9% compared with 2012.Online shopping users in China reached 302 million,
representing an increase of 59.87 million compared and an increase of 24.7% ,and the utilization
rate increased to 42.9% from 48.9%. The scale of online shoppers has expanded rapidly, which laid
the users foundation of online shopping market.
35000 60.0%
30000 48.9%
42.9% 50.0%
25000 37.8% 30189
35.1% 24202 40.0%
20000 28.1% 19395
24.5% 24.8% 30.0%
15000 22.1% 16051
10800 20.0%
10000 7400
3357 4641 10.0%
5000
0 0.0%
2006 2007 2008 2009 2010 2011 2012 2013

Number of online shopping users Penetration rate of online shopping

Figure 1. Source: CNNIC China's online shopping market statistics, 2014.04.

With the popularity of smartphones and the improvement of shopping experience, mobile
shopping has become a fashion. In the mobile terminal business market, mobile shopping using
Smartphones is developing rapidly. By the end of 2013, mobile shoppers using Smartphones
reached 144 million and the utilization rate rose to 13.2% from 28.9%.Mobile shopping using
307
Smartphones has become an important supplement to the online shopping market. Whether the
mobile shopping will replace the PC online shopping has become a hot topic in the industry. From
the current point of view, online shopping is still dominated by PC; in a long period of time, mobile
shopping using Smartphones and PCs complement each other and the use of Smartphones will
gradually replace the PCs for online shopping in the future.
However, even though mobile shopping has become increasingly prevalent among customers
around the word, there is still a lack of academic research focused on using Smartphones. From the
angle of mobile shopping decisionmaking model, this research will focus on mobile shopping
among Smartphone users in China. Combined with consumer utility theory and information
economics theory, the researchers will investigate the factors affecting mobile shopping using
Smartphones, through data collection and analysis to explain consumers purchasing motivation
using Smartphones. On one hand, the paper will fulfill the gap on e-commerce consumers behavior
research; On the other hand, the results will help businesses to better meet consumer demand and
provide theoretical support for the sustainable development of E-commerce industry.

Research Design
This study will explore that in the e-commerce environment, which factors will affect customers
decision-making for mobile shopping using Smartphones? Considering the existing literatures,
domestic and foreign scholars mainly research consumer purchase decision-making and its
influencing factors in e-commerce, but few academic researchers have studied the behavior of
mobile shopping, especially among Smartphones users for the research. Xu et al(2014) [1] find
several factors affecting customers online shopping, including reputation, price, process safety,
product attributes.Hu(2013) [2] identifies internet transaction cost has a positive regulatory role in
online shopping. Iyengar et al (2006) [3] believe the tendency to maximize can explain diversities in
decision making behavior. Venkatesh et al (2012) [4] find mobile adoption is affected by
performance expectancy and effort expectancy. Brasel and Gips (2014) [5] show touch interfaces on
mobile devices can increase customers purchase intentions.
There are many variables affecting online purchase models. This research project will focus on
mobile shopping using Smartphones application situations, the cognition of mobile shopping
characteristics and consumers individual characteristics.
Relationship between Online Shopping Situations and Decision-Making Model
Although the mobile devices screen is limited in size and functionality compared to PCs, there
isnt much difference in online shopping, and mobile shopping using Smartphones can meet users
majority needs. Besides, customers prefer the convenience provided by the mobile devices,
especially when customers are reluctant to invest in dedicated time. Because of their enhanced
digital mobility, mobile shopping allows customers to shop under all types of temporal or spatial
situations [6]. Hand et al (2009) [7] propose that shopping online is often a result of situational
factors. Thus, online shopping situations become one of the key factors affecting the choice of
users online shopping devices. Therefore, we believe that if online shopping scenarios are different,
there will be correspondingly different decision models. Thus, we posit the following:
H1. Online shopping situations using affect Purchase decision-making
First, we will classify online shopping scenarios, such as working, family leisure time, having a
meal, the car on the way, queuing, going to bed, getting up in the morning and so on, and then we
further examine the corresponding relationship between the different scenarios and decision-making
model. Through the questionnaire to collect data, the study will use factor analysis to identify online
shopping situations, and then search out mobile shopping using Smartphones situations categories.
Finally we will test the relationship between mobile shopping using Smartphones situations and
decision-making model. If there is a different relationship, the study further identifies the
corresponding relationship between the categories.
308
The Impact of the Cognition of Mobile Shopping Characteristics on the Consumers
Purchase Behavior
With the popularity of Smartphones and the improvement of shopping experience, mobile
shopping groups especially Smartphones users gradually grow, and have formed distinct online
shopping attitude. Neslin and Shankar (2009) [8] find customers shopping from multiple channels
have higher customer lifetime value. Even though limited in size and functionality, Smartphones
provide convenient access, which may leads to purchase intentions. However, the success of mobile
shopping transactions depends on the cognition of mobile shopping characteristics. For example,
whether mobile shopping experience among Smartphones users is enjoyable? Whether mobile
shopping using Smartphones is better than the PCs? We therefore posit the following:
H2. The better mobile shopping experience among Smartphones users, the more positive mobile
shopping intention
H3. The more cognitive advantages of mobile shopping using Smartphones, the more positive
mobile shopping intention
For this hypothesis, we select two kinds of variables (mobile shopping experience among
Smartphones users, cognitive advantages of mobile shopping using Smartphones). Mobile shopping
experience refers to the convenience, enjoyment, adaptability and satisfaction of mobile shopping
using Smartphones. Cognitive advantages of mobile shopping are the consumers understanding of
mobile shopping advantages using Smartphones. The understanding not only could be from
experience, also may be from the spread of mouth-formation. We will use online questionnaires and
server log files to collect data.
The Impact of Individual Characteristics on the Mobile Shopping Behavior
A number of empirical studies find individual characteristics impact the stages of the purchase
decision-making process, such as product involvement and consumer profiles [9, 10].Consumers
with high levels of knowledge are more aware of their preferences [11].Computer and network
experience have a major impact on online shopping behavior [12].Therefore, we select two kinds of
variables (demographic and technology traits).Demographic variables including sex, age,
occupation and so on. Technology traits include level of experience of using Smartphones, the
knowledge of the Smartphones network and technology self-efficacy
H4. Demographics influence the mobile shopping behavior among Smartphones users
H5. Technology traits affect online purchase behavior among Smartphones users

Online shopping situations

Cognitive characteristics
Mobile shopping experience
using Smartphones Decision-making pattern
Advantages of mobile shopping
using Smartphones Purchase behavior/ intention

Individual characteristics
Demographics
Technology traits

Figure 2. Conceptual framework.

309
Expected results
Hypothesis 1 is to investigate the relationship between online shopping situations and
decision-making model. Hypothesis 2 and 3 aim to examine how the cognition of mobile shopping
characteristics affects Smartphones consumers purchase behavior. Hypothesis 4 and 5 investigate
the impact of individual characteristics on the mobile shopping behavior.
Based on the above research, we will form an integrated conceptual framework about mobile
shopping behavior among Smartphones users and find the factors affecting mobile shopping and the
relationship between these factors and mobile shopping decisionmaking model. This wok will
contribute to e-business literatures by extending online purchase behavior. Besides, this research
will help retailers and brands in planning their mobile marketing strategies, designing mobile
purchase website and advertising campaigns.

References
[1] M.M. Chen, L. Wang, F.D. Wang, An Empirical Study of the key factors affecting consumer
online purchase decision-making, Modern Information. 2(2014) 37-42.
[2] C. Xu, An analysis of the factors affecting customers online shopping intentions, Value
Engineering.1 (2014)184-186.
[3] S.S. Iyengar, R.E. Wells, B. Schwartz, Doing better but feeling worse: looking for the best
job undermines satisfaction, Psychological Science. 17 (2006) 143-150.
[4] V. Venkatesh, J.Y.L. Thong, X. Xu, Consumer acceptance and use of information technology:
extending the unified theory of acceptance and use of technology, MIS Quarterly: Management
Information Systems. 36 (2012) 156178.
[5] S.A. Brasel, J. Gips , Tablets, touchscreens and touchpads: how varying touch interfaces trigger
psychological ownership and endowment, J. Journal of Consumer Psychology, 24 (2014), 226233.
[6] V. Shankar, A. Venkatesh, C. Hofacker, P. Naik, Mobile Marketing in the Retailing
Environment: Current Insights and Future Research Avenues, Journal of Interactive Marketing.
24(2010), 111131.
[7] C. Hand, F.D. Riley, P. Harris, J. Singh, R. Rettie, Online Grocery Shopping: The Influence of
Situational Factors, European Journal of Marketing, 43(2009), 12051224.
[8] S.A. Neslin, V. Shankar, Key Issues in Multichannel Customer Management: Current
Knowledge and Future Directions, Journal of Interactive Marketing. 23 (2009), 7081.
[9] C. Ranaweera, G. McDougall, H. Bansal, A model of online customer behavior during the
initial transaction: moderating effects of customer characteristics, Marketing Theory. 5 (2005)
5174.
[10] T.G. Chowdhury, S. Ratneshwar, P. Mohanty, The time-harried shopper: exploring the
differences between maximizers and satisficers, Marketing Letters. 20 (2009) 155167.
[11] J. Bughin, J. Doogan, O.J. Vetvik, A new way to measure word-of-mouth marketing, McKinsey
Quarterly. 3 (2010) 113116.
[12] H. Pechtl, Adoption of online shopping by German grocery shoppers, The International Review
of Retail, Distribution and Consumer Research. 13(2003) 145159.

310
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Development Strategies of Tourism

Internationalization in Wuhan City
Jiang-Min LI1,a,*, Wei LI1,b,
1
School of Economics and Management, China University of Geosciences, Wuhan,
Hubei Province, China
a
ljm1437@163.com, b1303698188@qq.com
*Corresponding author

Keywords: Tourism Internationalization, Development, Strategies, Wuhan City.

Abstract. This study mainly analyzes the current situation and problems of the development of
tourism internationalization in Wuhan and then put forward the strategies to promote
internationalization of Wuhans tourism based on the analysis of the connotation and features of
tourism internationalization. In order to improve the internationalization standards, it is needed to
make full use of the Wuhan city tourism circle to expand the influence and build international-brand
tourism enterprises; develop tourism products with international influence and promote construction
of ReBAM with Wuhan characteristics; promote the level of informatization and intelligence of
tourism attraction, pay attention to the humanized design of service facilities, strengthen the
education and training of international tourism talents, adopt international management means,
improve the international visibility of Wuhan, build a good external environment for international
development as well as cultural atmosphere, strengthen soft and hard power at the same time.

Introduction
With continuous development of global economic integration, cities which have important
influence on the competitiveness of the country participated in international labor-division and
economic competition directly [1]. City internationalization refers to constantly increase of mutual
contacts and exchanges activities that across national boundaries in human, financial, material,
information, the overall culture and other aspects[2]. Tourism internationalization is an important
part of city opening internationalization, it means a city's tourism functions gradually get in line
with world, cross-border tourism activities continue increasing, tourism radiation force and
attraction of the city improved constantly, and gradually integrate into the global tourism network
and develop to an international tourism city.

Literature Review
Research on the cities tourism internationalization is still at the beginning, and many of them
have obvious regionalism and the particular geographical position. They analyze development
status, point out the existed problems, and put forward measures and strategies, the main areas
involve Huangshan, Yunnan province, Hainan province and so on [3-5]. Tourism
internationalization is influenced and restricted by many factors like demand, policy, innovation,
infrastructure and carbon tax etc. [6]. Tourism internationalization contains the local factors, while
carrying the local traditional culture, power relationship and human emotion [7]. Puts localization
construction to strategic height in the perspective of globalization and internationalization [8].
Cities tourism internationalization is characterized by the number of foreign tourists and their
countries, the international economic benefits tourists and so on [9]. The embodiment of tourism
internationalization can be classified into five aspects: tourism experience, tourism education and
training, tourism management, tourism marketing, and tourism environment [10].

311
The Present Situation and Problems of Tourism Internationalization of Wuhan
The Present Situation of Tourism Internationalization of Wuhan
Promotion of Tourism internationalization is a dynamic process, Wuhan is a medium level city in
tourism internationalization from the development level and aspects of international tourism. But
Wuhan improve fast in recent years: in 2014, Wuhan established National Tourism Standardization
Demonstration City, the comprehensive quality of urban tourism is significantly improved; tourism
enterprises in Wuhan do better and stronger constantly; the construction of tourism large projects
continue to break through; policy that 72 hours transit visa free for foreigners was approved,
intercontinental flights to Moscow, San Francisco was opened one after another, Wuhan become the
only city direct to Europe and the United States in central region, which laid a solid traffic
foundation for the promotion of tourism internationalization in Wuhan. In order to reflect the level
of Wuhans tourism internationalization objectively, we select the number of inbound tourists and
international tourism income as the two factors in this paper (table1 and table2). We separately use
the growth rate of the national and Wuhans inbound tourists population and the growth rate of
entry income to make a broken line statistics (fig 1).

Table 1. The amount of inbound tourists and the growth rate of the Nation and Wuhan.
Particular year Inbound Growth Wuhans Growth Proportion of
tourists( Million rare (%) inbound tourists rate (%) Wuhans
people) (Million people) inbound tourists
(%)
2006 12494.21 3.87 45.89 11.3 0.367
2007 13187.33 5.55 52.98 15.4 0.402
2008 13002.74 -1.40 53.40 0.79 0.411
2009 12647.59 -2.7 66.90 25.3 0.529
2010 13376.22 5.76 92.79 38.7 0.693
2011 13542.35 1.24 115.91 24.9 0.856
2012 13240.53 -2.23 150.89 30.2 1.140
2013 12907.78 -2.51 161.37 6.95 1.250
2014 12849.83 -0.45 170.57 5.70 1.327

Table 2. Wuhans international tourism income and growth rate compared with Nation.
Particular year International Growth over International Growth Proportion of
tourism the previous tourism income over the Wuhans
income of year of Wuhan previous International
(Million (%) (Million dollar) year tourism
dollar) (%) income (%)
2006 33949 15.88 194.77 12.92 0.57
2007 41919 23.47 228.28 17.20 0.54
2008 40843 -2.57 254.29 11.39 0.62
2009 39675 -2.86 329.02 29.39 0.83
2010 45810 15.46 475.78 44.61 1.04
2011 48460 5.78 605.81 27.32 1.25
2012 50030 3.24 852.09 40.65 1.70
2013 51663.54 3.27 914.31 7.30 1.77
2014 56910 10.16 934.02 2.16 1.64
Source: Table 1, 2 adopt from the official website of the National Tourism Bureau

312
 Figure 1. Line chart of inbound tourists growth, revenue growth of Wuhan and Nation.

We can see that whether Wuhan or the whole country, the growth rate of inbound tourism
revenue is almost always higher than the growth rate of inbound tourists and the change range is
more obvious. In 2008 and 2009 negative growth appeared, and after 2012 inbound tourists and
inbound tourism revenue were both get down because the overall downturn in the international
economic development. But the number of inbound tourists and inbound tourism revenue in Wuhan
has maintained a rapid growth, the annual growth rate was more than 20% from 2009 to2012,
national share is also increasing year by year, speed of tourism development ranking first
national-wide according to Tourism Development Report of 2014.
In order to know the position of Wuhans tourism internationalization level in the whole country,
we selects four tourism cities of Beijing, Shanghai, Hong Kong, Hangzhou to make a comparison.
We can see from table 3 that the inbound tourists number and inbound tourism revenue of Wuhan is
far less than other four cities , share of the whole China is still relatively small, the number of
international lines is less than in other four cities.
Table 3. Comparison of the number of inbound tourists between several cities.
Cities Number of National Accounted Inbound National Number of
inbound proportion for the tourism proportion international
tourists in (%) proportion revenue in (%) lines (route)
2014 of the local 2014
(million population (Million
people) in 2014(%) dollar)
Beijing 427.5 3.339 19.8 4610 8.10 95

Shanghai 791.3 6.182 32.6 5705 10.02 98

Hong Kong 4700 36.718 6.7 43575 164

Hangzhou 326.1 2.547 36.7 2318 4.07 31
Wuhan 170.57 1.327 15.8 934.02 1.64 25
Source: data comes from the Tourism Bureau website of each Province
313
 We can come to the conclusion by horizontal and vertical comparison: although Wuhans tourism
internationalization promote at a top speed in recent years , and the proportion of the whole country
become more and more, but there still exist a big gap compare with other famous international
tourist in China .
Problems Existed in Tourism Internationalization of Wuhan
There are many problems in Wuhans tourism internationalization procession, which are mainly
reflected in seven aspects: (1) Lack of tourism enterprise group with international reputation.
(2)Tourist attraction which with international influence is not much there is no irreplaceable point
of these attractions to foreign tourists. (3)Tourism service has not been in line with international
standards, which can't meet the needs of international tourists. (4) Lack of a number of senior talent.
(5)There is a great distance in tourism management between the local tourism group in Wuhan and
international. (6)Wuhans tourism promotion of international marketing efforts is not enough,
Wuhan lacks a strong, unified international tourism city image. (7)The external environment for
tourism internationalization is not so good.

Development Strategies for Tourism Internationalization of Wuhan City

Make Full Use of the Wuhan City Tourism Circle
Wuhan city tourism circle is the concrete embodiment of Wuhan city circle. The range radius is
100km around Wuhan as the center, including 9 cities: Wuhan, Huangshi, Ezhou, Xiaogan,
Huanggang, Xianning, Xiantao, Qianjiang, Tianmen. Its needed to continue using the advantages
of Wuhan as the leading to bring good development opportunities in the future. Increase
government support, optimize the investment environment of tourism, attract more large
investment, especially foreign investment enterprises , encourage local tourism company cooperate
with foreign tourism enterprises, government should support the development more tourism
enterprise with international brand and promote the rapid development of the whole Wuhan city
circle tourism industry.
Develop Tourism Products with International Influence
Wuhan is a famous historical and cultural city in the country, has a history of 3500 years, one of
the most ancient cities in China. Wuhan doesnt lack tourism resources nor history and culture, the
key is to redevelop and image package excellent tourism resources of Wuhan, so it can produce
"irreplaceable" tourism attraction to international tourists. Construct the ReBAM with the
characteristic of Wuhan vigorously. ReBAM is a senior form and scale stage of round-the-city
tourism, has a positive effect on improving the environment of Wuhan and surrounding, enrich
tourism projects, and create the multiple levels of Wuhan urban tourism.
Promote the Level of Informatization and Intelligence of Tourism Attractions
Responding to the world's hottest theme :wisdom tourism, smart tourism projects should be
arranged and deployed actively, developing and improving digital information system like tourism
service system for public, electronic tour guide, mobile app, Wi-Fi coverage system etc. to provide
visitors service with intelligent, information and humanization and build a smart tourism service
brand of Wuhan. Improving the international financial services, promoting the development of
international bank card and credit card, simplified foreign currency exchange service, improving
tourism emergency rescue system, establishing complaints feedback mechanism for overseas
visitors, to improve the satisfaction of overseas tourists about Wuhan.
Strengthen the Education and Training of International Tourism Talents
The level of tourism industry practitioners determines the level of tourism internationalization
directly. The number of colleges and universities in Wuhan is second-position among China, which
is a natural advantage in talent training. Set up talent training base for international tourism,
strengthen the system theory training of tourism internationalization; government should encourage
314
cooperation between local universities and foreign colleges like launching more cooperation
program, learn advanced foreign management methods, so that management philosophy,
management tools and management systems can be in line with the international ultimately.
Adopt International Management Means.
The image building and international publicity of Wuhan city require the financial sector
increase the efforts on promotion and marketing of international tourism market. Its needed to set
up a professional marketing team, learn and refer to the successful tourism marketing mode, adopt
marketing method that keep pace with the times, strengthen the research of tourist source market,
further mining and refining the tourism image of Wuhan according to the characteristics of the
interest of domestic and overseas tourists market, to change the city image of "passing by". Creating
a tourist destination with international attraction, promote in a targeted manner for different tourist
markets; strengthen ties and cooperation with foreign embassies, overseas institutions, foreign
enterprises in Hubei Province, foreign companies, well-known airlines, travel agents, overseas
media and so on.
Internationalized Environment and Cultural Atmosphere.
Expanding overseas routes and opening airlines to all major transportation hub city overseas,
which lay good transportation foundation for international travel. Adopting public information
graphical symbols that internationally-accepted, using multilingual for text logo to create a good
international atmosphere. Running it well of portal site, microblog, WeChat of Wuhan tourism,
enrich and improve the information content. Perfecting laws and regulations, emergency rescuing,
medical service of our country and so on; building a certain number of higher grade toilets in
important scenic spot, large commercial areas, and important sections. In addition, strengthening the
international vision of the public, promote English, improve residents awareness and
open-mindedness of the international community.

Acknowledgement
This research was financially supported by the National Science Foundation of China (No.
41301156) and Young Expert Training Plan in Tourism of China National Tourism Bureau (No.
TYEPT201435).

References
[1] Zhao Jiao, Analysis on the characteristics and competitiveness of the development of
international tourism cities, J. Journal of Henan Business College. 2007, 20(3)62-65.
[2] Wang Yali, Urban Economics, F. Press of Capital University of Economics and Business,
2008:390-390.
[3] Yao Lizhong, Strategic thinking on the development of Huangshan City tourism
internationalization, J. Journal of Huangshan University, 2010, 12(4):9-13.
[4] Liao Jianhua, Study on the internationalization of tourism industry in Yunnan, J. Exploration of
economic problems, 2008, (6):130- 133.
[5] Li Ting, Research on tourism internationalization development countermeasure of Hainan, D.
Northeastern University, 2009.
[6] Richard S.J, The Impact of Carbon Tax on International Tourism, J. Transportation Research
Part D, 2007, (12):129- 142.
[7] Wang Shanyu, The Impact of Crisis Events and Macroeconomic Activity on Taiwans
International Inbound Tourism Demand, J. Tourism Management, 2009, (30):75-82.

315
[8] Peggy T, Lim H, Global and Local Interactions in Tourism, J. Annals of Tourism Research,
2003, 30(2):287-306.
[9] Wan Xucai, Ding Min, Xu Feifei, Evaluation and development of tourism internationalization
level in Nanjing City, J. Economic management, 2007(22):84-89.
[10] Shen Xiaofang, Research on the development mode of tourism internationalization of urban
community, D. Zhejiang Gongshang University, 2008.

316
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Parental Health, Education Investment and Human Capital Accumulation

Chen LU
Tan Kah Kee College, Xiamen University, Zhangzhou, 363105, China
luchen@xujc.com

Keywords: Parental Health, Human Capital, Overlapping Generations Modeled

Abstract. We extend the simple overlapping generations model with human capital formation to
incorporate parental health condition determined by the health investment made by children. We model
this health investment from children to parents as an upstream transfer motivated by exchanging for a
higher level of human capital. We first show that the government should provide subsidies for
individuals education and health investments. Second, the subsidy rates should be higher if the
effectiveness of education investment or intergenerational transmission on human capital accumulation
is higher

Introduction
An important contribution of intergenerational transfer has been to draw the attention of economists to
child-to-parent transfer, or upstream transfer. By using data from the Health and Retirement Study, Sloan
et al. (2002) analyzed upstream intergenerational transfers from middle-aged children to their elderly
parents. Their empirical results indicated that upstream transfers, particularly financial transfers, were
motivated by altruism. Lee and Robert (1997) used data on time and money transfers between generations
in Malaysia, where there is neither Social Security nor Medicare. They found evidence supporting the
hypothesis that children are an important source of old age security and that old age security is, in part,
childrens repayment for parental investments in their education.
Even though previous empirical studies have clarified the existence of upstream intergenerational
transfer based on altruistic or exchange motives, to our knowledge, there has been no theoretical work on
the effect of upstream transfer on economic growth and government policy. In this paper, we regard
health investments made by children for parents as upstream intergenerational transfers. This transfer is
made because young individuals foresee that their level of human capital in old age depends on the health
condition of their parents. We analyze the optimal education and health policy when parental health
condition plays a role in human capital accumulation.
This paper differs from previous studies in two respects. First, previous studies have paid little
attention to health and its role in education. In our paper, we incorporate parental health condition
determined by childrens purposeful health investment into their education, and analyze both
intergenerational and intra-generational resource allocation for childrens higher levels of human capital.
Second, rather than comparing the difference in the growth of human capital between public and private
education systems, as in previous studies, our paper concentrates on the external effect of health
investment and government policy with respect to education and health investment. Therefore, our paper
can be seen as a complement rather than a substitute to previous research.
The rest of the paper is organized as follows. Section 2 presents the model. The social optimum and the
optimal policy are analyzed in Section 3. Section 4 concludes.
317
The Model
We develop a simple overlapping-generations model in which time is discrete and indexed
by t = 1, 2,..., . There is an initial generation of old individuals ( t = 1 ), each of whom is endowed with
an exogenously given level of human capital ( h0 ). The succeeding individuals live for two periods,
young and old, and they work in both periods of life.
Preferences
The individuals born at time t are called the generation t . After the individuals are born, they inherit
their parents level of human capital ( ht ) at no cost. With the inherited level of human capital, they work
by inelastically supplying one unit of time and earn income that is assumed to be equal to the level of their
human capital (Glomm, 1997). Income can be allocated to current consumption ( ct ), education
investment ( et ) and health investment for their parents ( xt ). Specifically, the budget constraint of the
generation t in the young period can be written as follows:

ht T = ct + (1 te ) et + (1 tx ) xt . (1)

i
Here, t > 0 ( i = e, x ) represents the subsidy rate, and T denotes the lump-sum tax. It is worthwhile to
note that the education investment and the health investment indicate intragenerational and
intergenerational allocations of resources, respectively.
When old, the individuals earn income by inelastically supplying one unit of time with human capital
( ht +1 ), which is accumulated through education investment. In contrast to the young period, this income is
not solely dependent on the level of human capital but is also dependent on health condition ( t +1 ). This
is because, given the same level of human capital, old individuals with better health work more efficiently
and thus receive more income than those with poor health. Denoting the individuals consumption when
old by dt +1 , the budget constraint of the generation t in the old period can be written as follows:

dt +1 = t +1ht +1 . (2)

The preferences of the individuals are defined over their consumption bundle ( ct , dt +1 ). We assume that
the intertemporal utility function of the individuals is represented by

1
u ( ct , dt +1 ) = ln ct + ln dt +1
1+ , > 1 , (3)

where is the rate of time preference.

Health Production
Contrary to previous studies, in which it is assumed that individuals health condition is dependent on
their own health investment, we assume that the health condition of the old is dependent on the health
investment made by their children. In other words, health investment, in our model, is defined as
upstream transfer from children to parents that improves the health condition of the parents. This health

318
investment includes not only medical care provided by children but also the expenditure for sports paid
by children.1
We assume that the health condition of the generation t when old, t +1 , can be represented by the
following simple form:

t +1 ( xt +1 ) = xt+1 , > 0 , (4)

where measures the effectiveness of the health investment made by the young on the health condition
of their parents.
Human Capital Accumulation
In this paper, the level of human capital that individuals acquire when old, ht +1 , depends on the
following three elements. The first element is the amount of education investment made by the
individuals when young, et . The second element is the health condition of their parents, t . The
incorporation of parental health condition into childrens human capital accumulation is the key element
that distinguishes our paper from previous studies. As we have explained, the positive effect of parental
health condition on childrens human capital accumulation can be interpreted as a non-pecuniary transfer
that children obtain from their healthy parents in the form of inherited experience and guidelines. The
third element is the level of human capital inherited from parents ( ht ). In sum, human capital is
accumulated according to the following function:

ht +1 = Aet ( xt ) ht , A > 0, , , (0,1) , (5)

where A is a constant parameter representing the productivity of the human capital accumulation, and
denote the elasticity or effectiveness of education investment and of parental health condition,
respectively, and captures the degree of intergenerational transmission of human capital.
Government
The revenue collected from a lump-sum tax is used by the government to subsidize individuals
education and health investment. A balanced government budget requires that

te et + tx xt = Tt . (6)

Individuals Decisions
The problem for the generation t is to choose their consumption when young ( ct ) and old ( d t +1 ), their
education ( et ) and health investments ( xt ) to maximize their intertemporal utility (3) subject to budget
constraints (1) and (2), health production function (4) and human capital accumulation (5). When making
maximizing choices, the individuals do not perceive the positive effect of those decisions on their
ht
parents income. The optimal education and health investments are obtained as : et = ,
1 te

1
As pointed out by Bhattacharya and Qiao (2007), both public and private expenditures are important components for a health system.
However, because our paper concentrates on inter- and intra-generational conflicts for individuals, we exclude public expenditure on health.
319
 ht
xt = . where et and xt indicate the intragenerational and intergenerational allocation of
1 tx
tx te
resources when the individuals are in their young period and = 1 + + + + + . It is
1 tx 1 te
obvious that the effectiveness of education investment is increasing on human capital accumulation and
is decreasing on parental health condition.
Long-run Market Equilibrium
The level of human capital that the generation t acquires when old, ht +1 , can be obtained by
substituting the optimal choices for education investment and health investment into health production
(4) and human capital accumulation (5), as follows:

e
ht +1 = A (1 )
t x ( ) ht + + . (7)
1t

To obtain the steady state value of h , we set ht +1 = ht = h* in (7), where subscript * denotes the steady
state in the market equilibrium. In addition, we assume that + + < 1 to obtain the unique value of
1



1( + + )
h* , as h* = A (1 e ) x ( ) , where e and x without time subscripts
1
represent the subsidy rates of education and health investment in the steady state. It is obvious that the
steady state of human capital is increasing in the effectiveness of education investment on human capital
accumulation ( ) and is decreasing in the effectiveness of parental health condition ( ). In addition, it
is obvious that the steady state of human capital under market equilibrium depends on the subsidy rates.
The simple substitution of h* into education and health investment yields the education and health
investment in the market equilibrium, as follows:
1 1
+ 1

1
1 ( + + )
1
1 1( + + )
e* = A 1 (1 e ) x ( ) , x* = A 1 e
( ) x () .
1 1

Social Optimum and Optimal Policy

In this section, we focus on the optimal policy of the government with regard to the individuals
education and health investments. To obtain the optimal policy, we consider the problem of the
government maximizing social welfare or the individuals utility in the steady state. The individuals
education and health investment in market equilibrium does not constitute the social optimum because of
the existence of a positive external effect of health investment. Therefore, it is necessary for the
government to apply policy to achieve the social optimum. We will first investigate the social optimum
and then obtain the optimal policy with regard to the individuals education and health investment.
The problem confronted by the government is to maximize social welfare ( W ) by choosing a
consumption bundle ( c , d ), education investment ( e ) and health investment ( x ). Because the analysis
focuses on the steady state, time subscripts are omitted.

1 /1
max W = ln c + ln d , s.t.h = c + e + x, d = ( x ) h, ( x ) = x , h = Ae /1 ( x ) (8)
1+

320
By solving the problem, the optimal education and health investments are obtained as follows:
1 1

(1 + )(1 ) + + + + 1
1
1
(1 + )(1 ) + + 1 + + 1
, + 1 1 ,
e** = A x** = A
(2 + ) (2 + )
1 + ( 2 + )
where > 0 , and the subscript ** denotes the value of the steady state in
(2 + + )
the social optimum.
The comparison of these solutions with those in market equilibrium yields the optimal subsidy rates for
the individuals education and health investment in market equilibrium to achieve the social optimum.
Then, we summarize them in the following proposition.
Proposition 1: The optimal subsidy rates for the individuals education and health investment are
1 + + + + + 1 + (1 + + + + ) ( + )
*e = and *x = , respectively.
2 + + 1 + ( 2 + ) ( + )
It can be seen that both *e and *x are always between 0 and 1 by the assumption that + + < 1 .
This result is not surprising. In the market economy, because young individuals are unable to conceive of
the positive external effect of their health investments on parental income through better health, they tend
to make lower health investments than the social optimum. In other words, young individuals
underestimate the effect of their health investment on the welfare of society as a whole. As a result, the
government provides incentives to them through subsidies to achieve higher health investment. In
addition, because health and education investments are complementary in human capital accumulation,
the increased health investment will lead to a greater effectiveness of education investment. Therefore,
the government will encourage individuals to make larger education investments by providing subsidies
as incentives.
Next, based on the optimal subsidy rates of education and health investments, we investigate the effect
of the rate of time preference, , and the effectiveness of education investment on human capital
accumulation on these two subsidy rates. This produces the following proposition.
Proposition 2: When the rate of time preference or the elasticity of education investment on human
capital accumulation rises, the optimal subsidy rates become higher: *i / j > 0 , i = e, x , j = , .
We can provide the intuition for the cases of increases in and in turn. When the rate of the time
preference increases, consumption in the young period increases. It leads to lower education and health
investment when income is unchanged. Lower education and health investments in the young period
decrease consumption in the old period. To achieve the social optimum, the government should increase
the subsidy rate to provide incentives for individuals to make greater education investments. Similarly,
when the effectiveness of education investment increases, the marginal utility of education investment
increases, which leads the individuals to make smaller education investment than the optimum. Therefore,
the government will also provide subsidies to increase individuals incentive to invest in education.
In contrast to the above results, the direction of changes in the subsidy rates of education and health
investments might differ when the effect of parental health on human capital accumulation increases.
Proposition 3: (a) When the effectiveness of parental health on human capital accumulation increases,
the optimal subsidy rate of education investment unambiguously increases: *e / > 0 ; (b) When the
effectiveness of parental health on human capital accumulation increases, the optimal subsidy rate of

321
health investment becomes higher (lower) if the effectiveness of health investment on parental health
2
x ( + 1)
production is sufficiently large (small): * / ( ) 0 if ( ) .
2 (1 ) + ( 2 + )
The intuition of Part (a) of Proposition 3 can be given similarly to Proposition 2 and Corollary 1. When
the effectiveness of parental health condition on human capital accumulation increases, the productivity
of education investment increases, which leads to a higher marginal utility for education investment.
Because parental health and education investment are complementary in human capital accumulation, the
education investment should be higher. Therefore, the government will provide subsidies to individuals
to increase their education investment.
In contrast to Part (a), in Part (b), the effect of the increase in on the optimal subsidy rate of health
investment is dependent on the effectiveness of health investment on parental heath condition, . When
is sufficiently large (small), the government should increase (decrease) the subsidy rate of health
investment when the effectiveness of parental health condition on human capital accumulation increases.
It should be noted that, in our paper, the effectiveness of health investment on parental heath condition
can be interpreted as the degree of the positive external effect of health investment on parental health
condition. When this level becomes large (small), the increase in will cause young individuals health
investment to have a strong (weak) effect on human capital accumulation. As a result, the government
should increase (decrease) the subsidy rate of health investment.

Summary
This paper incorporates parental health, determined by childrens health investment, as an important
element of childrens education into an overlapping-generations model with human capital. This
purposeful investment, regarded as upstream transfer from children to parents, is motivated by an
exchange for higher levels of human capital. Our results first suggest that the government should provide
subsidies for individuals education and health investments when parental health condition plays a role in
childrens human capital accumulation. Second, the government should increase the subsidy rates to raise
incentives for individuals education and health investment if the effect of education investment or
intergenerational transmission on human capital accumulation increases or if the preference for current
consumption becomes higher. Third, if the positive external effect of health investment on parental health
condition is sufficiently large, a greater effect of parental health condition on childrens human capital
accumulation should lead to a higher subsidy rate.

References
[1] Becker, G., 1974. A theory of social interactions. Journal of Political Economy, 82, 1063-1093.
[2] Glomm, G., 1997. Parental choice of human capital investment. Journal of Development Economics,
53, 99-114.
[3] Grossman, M., 1972. On the concept of health capital and the demand for health. The Journal of
Political Economy, 80, 223-255.
[4 ]Jani-Le, B.H., 1993. Family care of dependent older people in the European community, European
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[5] Kalemli-Ozcan, S., 2002. Does the mortality decline promote economic growth? Journal of
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[6] Lee, A.L. and Robert, J.W., 1997. Motives for intergenerational transfers: Evidence from Malaysia,
Demography, 34, 115-134.
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[8] Salvage, A.V., 1995. Who will care?-Future prospects for family care of older people in the
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[10] Sloan, F.A., Zhang, H.H. and Wang, J., 2002. Upstream intergenerational transfers. Southern
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Economics, 122, 1265-1306.

323
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Fresh Products O2O Mode of New Development

Base on the Internet of Things Era
Yang LIU1,a, Li-Yan WANG2,b,*
School of Business, Guilin University of Electronic Technology, Guilin, 541004, China
a
1322362341@qq.com, bwangliyan9726@163.com,
*Corresponding author

Keywords: O2O Mode, Internet of things Technology, Fresh Products

Abstract: As the network communication, intelligent sensor etc technical breakthrough, Internet of
things era has arrived. At the same time, the initial phase of O2O mode need the relevant research
and thinking inevitably, which based on the wave of the Internet of things. In this article, by means
of fresh products O2O mode combined with Internet of things technology. In order to solves the
current bottleneck of the development of the fresh product industry O2O mode and provide new
ideas and methods, which service the rapid development of market economy in our country.

Introduction
The concept of Internet of things was proposed in 2005, Tunisia held a World Summit on the
Information Society. "The Internet report for 2005 of the International Telecommunications Union:
Internet of things" was released by International Telecommunications Union. The concept after the
outbreak of the financial crisis, this concept caused the attention of Governments. Under the
leadership of our government, we formulated the outline of the national long and medium term
program for scientific and technological development, and "Next-generation broadband wireless
mobile communications network" major projects regard the Internet of things as the key areas of
research. The Internet of things technology including radio frequency identification (RFID)
technology, infrared sensors, global positioning system, laser scanner, intelligent technologies such
as 3D printing technology. According to a certain protocol to link all things in the real world,
achieve "everything" full awareness, effective communication and Information exchange, intelligent
processing.
The United States for the first time in August 2011 proposed the concept of O2O (online to
offline), The development and prospect of the concept is rapid and broad. US online consumer
development has only 8% of turnover, the offline consumer ratio is still 92% so far. For China, the
ratio is lower than America, it is 3%, 97% respectively. However, O2O mode in China are mostly
used in online discounts and Business To Team (B2T). For transformation of sales of fresh food,
especially fresh products currently online shopping popular demand, O2O model also shows its
strong advantages and prospects; At the same time, with the rapid popularization of Internet of
things technology, let O2O mode to see a more effective way to achieve approach and technical
support, greatly promoted the application of subdivision O2O business model to other areas.
The O2O mode based on Internet of things technology, greatly improve the efficiency of
investment in material flow, energy flow and information flow. For the fresh products from the
traditional business model to better transition to O2O mode, bottleneck problems faced by
providing a more effective solution and implementation of ideas.

O2O Mode Principle

O2O (Online To offline) mode is a new business model, which combines offline trade with online
transaction. It make the offline entity shop information pass to online customers by the online
merchants group purchase discount, online discounts, information services, etc. The deal process is
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completing online payment, order, and then with the online access to digital payment vouchers,
guide consumers to the corresponding online store complete consumer experience. At present, the
development of the O2O business model is a new things in our country, its main operating mode is
mostly adopt "electronic market + store preferential consumption". According to iResearch statistics
Website, 2011 China O2O life services online market size is 36.11 billion, it rising to 109.2% in
2012, 75.56 billion; Expected future life service O2O field has been widely regarded as the next
trillion market.

Fresh Product Features

What kind of products correspond to what kind of business model. Due to the nature of the
problem of fresh products will inevitably lead to the "traditional" O2O mode of some inappropriate
places, causes problems, and needs to be improved. Therefore we need to understand the natural
properties and features of fresh products. Fresh products generally have the following
characteristics:
(1) It possess biological properties, and it is organic matter. Fresh products in the production,
processing, distribution and transportation process, that material object in the process of the entire
supply chain is possible loss, deterioration.
(2) Not easy to storage. Because most of fresh products will be oxidizing, biochemical reactions
as time goes by, leading to degeneration. So it is difficult to storage than the general goods.
(3) Restricted by natural conditions. Fresh product itself is produced in nature, and it is restricted
by different regions; Varieties in each region is relatively fixed, some fresh product has "specialty"
distinction. It may cause the same kind of fresh products quality level appears distinction. This
feature is also the key point of business considerations.
(4) Place of origin generally in the rural areas. Because disposable income of urban residents is
higher than the rural population, and the higher the urbanization of the city, its basic Logistics will
be better. And agricultural products are" Naturalizing relatively high." The demand of daily fresh
products in local area can be solved, so fresh products more from rural to urban.

The Current Situation of Fresh Products O2O Mode

2012 is considered the first year of the fresh products development of electronic business. It is
regarded as the starting point of fresh products E-commerce. As part of the service areas of local
life, fresh products O2O model is quietly rising and rapid development. For the urban white-collar
workers and mobility of the elderly who have no time to buy food, which provides effective
solution to meet the future market development. Fresh products as the main part of the consumer
goods rigid demand, which is a necessity of life every day, it has a huge market and demand;
Because of the convenience of online shopping, the click of a mouse, we can enjoy clothes
e-commerce shopping experience, which is expectation and demand of human nature, so fresh
products O2O model has increasingly been expected.
Fresh Products O2O Current Mode
At present fresh products business model substantially integrate the upstream the fresh
production base information for network operators. The information is about product quality and
product type of the individual scattered farmers. Then they make fresh products pictures, price,
variety and other related information release platform on the Internet. Consumers purchase fresh
products and place an order, then complete the online payment, according to the online order
credentials to community selected or self-service machine to get the required fresh products. O2O
mode picture is shown below as Fig.1.

325
 Fresh base, retail supply

Release online information

Consumer orders to buy

Delivery Service Distribution or Get independent in

autonomous buy nearby device

inventories
system
Consumer

Figure 1. Operation flow chart of fresh products O2O mode.

Facing Problems about Fresh Products O2O Mode:

Because the characteristics of fresh products, current implementation O2O mode existing
problem, which generally can be studied from five aspects. The five aspects are the product itself,
real-time network interactive information, logistics distribution, terminal, consumer, respectively.
(1) Product Itself. O2O model must take into account the characteristics of fresh products. The
analysis of the product itself is divided into the product quality, quantity, price, inventory four
aspects. Fresh products, it is hard to like clothes shoes and other goods industry standardization,
different fresh product due to different category, Natural Properties; It are different preservation
processing, hierarchical preservation is difficult. Due to influence on each other and work together
in the real world, so businesses helpless to take the necessary "concession", reducing the quality of
the product; then, owing to the number of product demand can not reach a certain size, orders less
than expected, fresh supply base and the retail supply can not Signed with O2O mode operators
directly, so operators can not provide rich product variety and disguise to improve their operational
costs. At last, In the process of transportation, fresh products inevitable loss, which lead to inventory
and inferior-quality product, further increasing the operating costs. These factors ultimately lead to
fresh O2O mode operators product price is higher, which can not make the common and thrifty
consumer accept.
(2) Real-time Network Interactive Information. Nowadays, development of more advanced
foreign O2O mode, fresh product operators mostly integrated online fresh product prices, pictures,
dates and other relevant information. Unidirectional transmission of product information to

326
consumers, consumers obtain the information they need, online purchase, and they have access to
electronic payment orders data credentials. However, in the online information interaction and
complete the payment process, fresh product information mostly stay in vendors display, the
information can not be consistent with the individual's conscious experience. Finally, it results in
network information asymmetry. (For example, vendors displaying green water full of fresh vegetables or
seafood, to show their online products, "good quality".) Let O2O mode of operation development has
brought challenges and risks.
(3) Logistics Distribution. In addition to some developed cities, fresh products logistics and
distribution mostly adopt cold chain distribution. The current development of China's cold chain
logistics is still generally lag behind, we have not formed a complete set of mature standardized
fresh cold chain logistics system; In view of the domestic fresh products, cold storage rate
accounts for about 10% of the total output, the cold chain circulation rate is only 5%. Currently,
more than 90% of fresh product in the absence of cold chain transport security conditions.
Insufficient number of cold chain equipment distribution links, inadequate facilities. And our
development lags behind other countries , which significantly influenced the specification of fresh
O2O model; comparing developed countries, there is still a lot of room for improvement.
(4) Terminal. Offline "terminal" layout need reasonable planning If you select the neighbouring
community convenience store, then you need to solve the problem of distribution of benefits after
cooperation; meanwhile, let convenience stores to join co-exist, which need to achieve the unity on
the intent. If you want to solve the problem about autonomous smart terminal equipment, including
capital investment in refrigeration equipment, information collection, processing system. Difficulty
is very big.
(5) Consumer. To buy vegetables, the elderly are the main crowd. They often buy fresh product
in the supermarket. If we want to promote fresh O2O mode, We need a market publicity and
education for these groups. At last,O2O mode "new" way to buy food to consider each part of
consumer spending habits.

Internet of things technology combined with fresh O2O mode significance

(1) At any time, we can check or integrate the information about fresh product base, retail
suppliers. Information published become more targeted; according to real-time collaboration
product information, operators can update fresh products information timely on the platform. It is
more convenient understand the fresh food information.
(2) Distribution of fresh products become more secure. It use Internet of things technology in
EPC tag technology to record fresh product business entity line scheduling, distribution, storage; the
seller and the buyer would both receive instant information about trading products. Of course, Third
party information providers could provide more detailed information. O2O electric business can
also track the real information about upstream products, implement Platform collection, dispose,
analysis, publication.
(3) Let the last link in the cold chain logistics more standardized; the construction of cold chain
logistics system becomes more and more economical. The use of cold chain equipment become
more scientific.
(4) Online transactions of consumers, which become feasible. The Internet of things technology is
so useful and safe, it make consumers search their own online payment information quickly on their
mobile device. The location information of the orders, consumers can also check; if you wish to
know the other relevant data besides to temperature of the refrigerator, the Internet of things
technology would make it come true. Then, consumers can decide when to pick up the package or
entrust logistics company deal with their own orders.
O2O mode operators use the Internet of things technology, such as the radio frequency
identification (RFID), GPS positioning system, 3D printing technology; Let O2O mode "offline
fresh product procurement", "online information publishing and online transactions," "Get offline
community experience" three plates business become more intelligent.
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 Business can not only online query each transactions data, but also know released information
online and offline product information matching degree, if online fresh product information is
wrong, they can amend it in time. Meanwhile, the remaining goods and returns services can be
better handled. Third-party network operators would make data integration process become more
reliable. They only integrate sectors in their own businesses publish information, reliability, truth is
not known; and they can search classification fixedly, then show data in their own website. Based
on the Internet of things, third-party network operators could collect through the products processed
timely feedback. Now, they do not rely on information, which come from production base supplier.

Table 1. O2O business model combined with each plate evolution of Internet of Things.

O2O fresh Online business Third-party network services Offline business entity
business model products, services shop operations
information

The Internet of Providing a Tracking Information The entity product,

things physical product, acquisition every moment; service information
service Process the data more more secure; Better
scheduling, rapid powerful; Both sides more monitoring, more
information comprehensive information scientific chain
updates feedback scheduling

Fresh O2O model design based on the Internet of things

Aiming at the existing problem of the fresh market, design corresponding O2O mode based on
Internet of things technology, mainly including trading operations, participants, profit model,
service propaganda.
trading operations

Fresh O2O
participants
model design
based on the
Internet of
things
profit model

service propaganda

Figure 2. Internet of things technology O2O mode design.

328
(1) Trading Operations is Shown Below as Fig.3
Fresh base,
Offline
retail supply
positioning,,
whole network
release

Release online
information
The online
operation, full
network
integration Consumers
order and pay

inventories Delivery Service Community stores get independent in

processing system By Distribution Distribution or nearby device
center autonomous buy

Consumer

data detection management

Figure 3. O2O mode operation system based on the Internet of things technology.

(2) Participants are Shown Below as Fig.4

O2O Internet
of things
online
technology

Fresh Internet of
things platform
Fresh base, retail Consumer
supply demand
side

Figure 4. O2O mode participants based on the Internet of things technology.

329
 (3) Profit Model. Excavating value-added services based on fresh product main business;
multi-angle excavating interest channels through each link of the physical network. Operators can
provide "real-time tracking products" through EPC label technology, then they make a charge for it.
They can also gather popularity by O2O mode online discount, coupon. It will be forming a chain
reaction and obtaining more benefits.
(4) Service Propaganda. Enterprise make use of network convenience to propagandize service
content, create a good internal and external impression. Enterprises intensify propaganda in offline
physical store and "terminal", online and offline promote each other. Finally, It can establish a good
brand and enhance influence.

Conclusion and outlook

Due to the current national policy to promote network operators, and vast market demand of
network information service; currently, fresh O2O mode is described" Blue ocean", it has huge
profit margins. The field is novel. Relevant experts are still exploring, convenient "O2O mode" is
obvious trends in the future. Enterprises combine O2O with the Internet of things related
technologies, which make practical problems be solved better. For those adopt O2O mode of the
enterprise is significant.

Acknowledgement
This paper was financially supported by the Guangxi autonomous region of innovation and
entrepreneurship students projects approved training program. (201510595100, 201510595041)

References
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Chinese Academy of Social Sciences, 2014.
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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on O2O Business Model and Strategy of Urban Distribution in

Mobile Internet Environment
Jun TAN
Zhuhai College of Jilin University, Zhuhai 519041, China
gdhkwl@163.com

Keywords: Mobile Internet, City Distribution, O2O Commercial Mode, Energy-saving and
Emission-reduction

Abstract. According to mobile communication and Internet technology, we are now building the
O2O commercial model of the deal for city distribution information, as well as achieving the high
usage of social goods transportation resources and industrial energy-saving and emission-reduction.
We will analyze the driving factor in urban distribution current operation mode revolution through
mobile Internet environment, we will also study on urban distribution information transactions and
credit management model so as to put forward urban distribution of O2O business model and
enterprise software development, logistics parks, mobile Internet operators cooperation strategy
based on the Internet according to the organization of urban distribution, business relationships and
business processes of the complexity features.

Introduction
With the rapid development of broadband wireless access technology and mobile terminal
technology, the further development trend of mobile Internet has become a hot research to the
experts and scholars. Some scholars believe that the cloud services, mobile, big data, machine
learning and the innovation of user experience will become the direction of the four IT industry in
the further decade. [1] Anderson addressed in the Long Tail theory that because of the concerned
cost has been decreased, it can create products and services advantages in the Internet era, that
through the market segmentation, companies focus on a specific target market. They are either
directed against a niche market strictly, or focus on business service. Alexander Osterwalder, in his
book "Business Model Generation", believes that the business models includes value proposition,
customer segmentation, distribution channels, customer relations, sources of income, resources and
core capabilities, critical business (or enterprise value chain), as well as key partners such nine
elements of the cost structure. Professor Zhong Ning from Fudan University, thinks that we must
produce and spread the proposition value, profit mode selection, setting the cost structure, as well as
cooperate with various stakeholders to complete value creation at the value network . Zhang Qian
Fang and others think that we should know the types of applications for mobile business model
from the enterprise value chain theory; In the mobile E-business, Liu Yujun and others analyzed
and put forward the strategies; Wei Xiao Chao and others applied game theory and diffusion theory
to make a research on the mobile E-business value chain membersgain sharing, with operators as
the dominant factor, and cooperational strategies under the demand driven .
Nowadays, there is no literature to make a research about the commercial mode changes of
urban distribution influenced by mobile Internet. Therefore, as the main body of urban distribution,
this essay will discuss how mobile Internet, which has developed rapidly, make an effect on the
commercial mode of the urban distribution and talk about the cooperation strategies between the
O2O commercial mode of information deal and cooperative partners in order to refer our country
to the arrival of the time that the urban distribution will embrace the Internet age. [2]

331
Analysis of Urban Distribution of Revolution Drivers in Mobile Internet Environment
The Development of Mobile Internet and E-Commerce Service Life Caused by Growth
Diversified Application Requirements
At present, the domestic e-commerce market is still based on transacting commodities and
physical class such as Tmall, JD, Dangdang etc. [3] This transactions has been stabilized and
e-commerces powerful competition for new business will change into Life-services (see FIG. 1).
Based on large flow and business volume of Internet thinking, like Ctrip and Qunar, these kind of
companies are successful in the life-services commodities of plane ticket and hotel. Meituan,
dianping got the advantage catering industrys coupon and the business mode of group buying
development. Didi, Uber is growing rapidly in a private car service market. [4] Although it is facing
some legal obstacles temporarily, its comfortability and service efficiency is highly above the
traditional taxi. This will lead to a huge revolution in taxi industry. At the same time,because of the
issues of the less organizing, lacking of service standard and dispersed transport capability, business
mode will no longer meet the requirements of development of the industry. The development of
"Internet +" provided the conditions to the commercial innovative mode of the urban distribution
industry. [5]

Travel

Catering Medical

Finance
Urban
Hotel Distribution

Education

Figure 1. Mobile Internet + Life-services products.

Urban Distribution of Value Discovery, LBS Technology Have Been Achieved

LBS, as known as location-based services, is a combination of a mobile communication network
and satellite positioning systems together to provide a value-added service. [6]It is required to attain
the location information of the mobile terminal from GPS (such as latitude and longitude
coordinates data), providing the mobile user himself or others and a communication system so as to
achieve the location-related business. GoGoVan is a taxing booking app, which was set up in
Hongkong, July, 2013. The entrepreneurial team was set up by five people in Hong Kong, who are
borned in 1980s and back from America. In the beginning, the entrepreneurial team received the
micro-venture capital investment of Hong Kong Cyberport Management Company Limited, owned
by the Hong Kong SAR Government. At present, it has already served to six countries and area, that
is Hong Kong, Taiwan, Singapore, Australia and South Korea. All the GoGoVan provide in the
platform are vans to handle the demanding issues of carrying furniture, pet transfer, business users
carrying goods, delivery send shipment . The appearance of GoGoVan made a huge impact on the
Hong Kong lorry scheduling mode, because the owner could release the shipping information
immediately by phone APP, then the drivers could improve flexibility and choice accepting by
phone. To a large extent, it reduces driver's intervention and control from the platform in order to
2
332
enables the customers to get the fastest response and services they feel the best and make the driver
more flexible to choose the optimum route.
Encouraging the Development of the City of Joint Distribution by the Policy Guidance
Policy is one of the economy engine and leverage, but also is one of the security mechanisms of
economic development. The experimental unit of the joint distribution was put forward by ministry,
being directed currently against the domestic common problems like its difficult for distribution
trucks to enter the city, low degree of organization, higher distribution costs and so on, to propose
scientific plans and actively promote the establishment of a service system of urban distribution.
The ministry also tightened the policy of City Joint Distribution integrated service platform
specification. In the specific organization, it will use advanced Internet technology to build
information platform. Besides, it also will encourage the service of "one to many" and distribute
jointly to the various trade enterprises and community stores relyed on specialized third-party
logistics or the suppliers.

Distribution O2O Business Models Based on Mobile Internet City

Currently, the urban distributions capacity is highly fragmented, less organized and lack of credit
management. Based on that, the next part will discuss the O2O business mode which base on
mobile client APP application to establish mobile Internet credit scoring system as the core and the
urban distribution information trading which is based on drivers credit and institution of the order
transformation. The mobile phone clients are not only able to release the business information, but
also can attain the real time information of the distribution cars from LBS. The information
platform will coordinate and allocate the source to make the best use of time, which allow the users
who have demand make a deal with the free car quickly, avoiding drivers waiting or ballast.
Eventually that could increase the utilization of distribution cars milestone. In addition, the
shippers and drivers could make a credit rating to each other online to establish a credit
accumulation inside the information platform after dealing.
In the following sections, the commercial mode such as client app, information authentication &
process control, services evalution & credit management, value-added services etc. will be focused.
Client APP
Based on the mobile communication terminal - smart phones, the application is using the
information entry such as Mobile Client App, WeChat and venture website to make sure
information is delivered in time and with effectiveness. The shippers and drivers are able to
download the App and establish the connection by App platform. The platform, which following the
Match Principal, will coordinate and assign the real time business information and distribution
trucks real time information released by shippers so as to provide convenient trucks information
for the shippers . Thus, the drivers also become more flexible for choosing best route to decrease
rate of empty driving and cut down the waiting time.
Information Certification and Process Control
If shippers and drivers want to register in information platform, they have to submit and be
responsible for the data accuracy, otherwise it is impossible to register their accounts. The valid data
that submitted by drivers including their ID, driving license, vehicle operation certificate, vehicle
number plate, the photo including driver and vehicle and etc. The platform will evaluate the above
information with local vehicle administrative office. The cargo keepers have to submit personal ID,
commercial business license, tax certificate, representative of artificial person information and so on.
After valid the information online, information platform will require all the registered users to
confirm within a certain period. To a large extent, it avoids some big logistic website releasing the
false information.

333
Service Evaluation and Credit Management
The key credit score assessment is to standardize the service when drivers are delivering. These
service standards will encourage drivers to serve better and gain the customers satisfied evaluation
so as to improve their rating.
Value-added Services
The shippers and drivers will have a real-name validation to ensure reality of the trade parties
information. The credit appraisal system will lead clients following the transaction information
rules. Based on integrity of transaction information data and deal rate, information trade platform,
been directed against shippers in well credit, could offer the services of paying out for the freight
micro-financial guarantee. It also can provide personal financial services to the drivers whose credit
rating is great. For example, the platform can provide business of installment loan guarantee for the
drivers wanting to purchase cars. Moreover, the platform also offers service of online purchase of
delivering insurance and support to compensate the damage and loss. The customer service system
operates 24 hours a day. With the mobile base station and GPS alocation, the platform can
supervise the transporting trucks in real time to make sure the safety of trucks and commodities and
decrease the risk of transportation effectively.

The Strategy of Logistic Platform Construction under Mobile Internet Environment

Compared with the traditional business model, O2O business model based on mobile Internet
urban distribution increases software development like client APP, Wechat official Accounts etc.
The customers are more dispersed and the service type and volume of business increases . Therefore,
its vital for the platform to establish partnership with software development enterprises, logistics
parks and mobile Internet operators.
Cooperation Strategy Between Software Development Venture and Information Platform
Operation Venture
The technical support of software development venture plays an important role in the urban
distribution O2O commercial mode. The information platform operation venture outsources the
mobile application platform construction and client APP development to software development
venture, which will be responsible for integrating mobile application software and platform
construction with a way of turn-key project. In addition, the software development venture is also
able to construct their own mobile application platform and become a leader of platform. At the
same time, it will face a variety of application small and micro logistics businesses to serve and
make a profit. The small and micro logistics businesses or drivers can register landing platform,
then use the mobile terminal to get mobile application services offered by the platform from mobile
Internet.
Cooperation Policy Between Information Platform Operation Venture and Logistics Park
There are many special logistics companies in the logistics park, these companies trucks need to
dispatch the goods to their customers after going to the logistics park. Similarly, the goods
undertaken by these companies at the local are required to gather to load in the lorry and transport
to other places in the logistics places, which is very important to urban distribution information
platform . The information platform operation venture sign a cooperation agreement with the
logistics park, then the special logistics companies in the logistics park agree to use the business of
client APP caring distribution so the profit generated online will be divided into the rates. The
logistics park will share the profit with special logistics companies or transform into other inspiring
ways to encourage the companies to use mobile information platform.

4
334
Cooperation Strategy Between Information Platform Operation Venture and Mobile Internet
Operators
Due to large amount of urban distribution, high frequency service and the large generated
network traffic, it requires operators to provide safe, stable and high speed mobile Internet,
according to the feature in huge demand, to get the advantage of price negotiation from mobile
Internet operators. The mobile Internet operators have two strategies: One is using its strong barging
power to sign agreements with mobile Internet operators and enjoy preferential packages. Being
directed against new services launched by mobile Internet operators, it can choose a combination of
service packages or combination of tariff packages. Another is, being directed against current
mobile Internet operators which provide the equipment of mobile terminal, it can choose the mobile
terminal products provided by mobile Internet operators in a large amounts and network services.

Conclusion
To sum up, this paper has analyzed how mobile Internet make an impact on the way of urban
distribution operating management and commercial mode and put forward the commercial mode of
urban distribution . Compared with the traditional commercial mode, the O2O commercial mode of
urban distribution has some significant changes and innovations. That is the urban distribution uses
the mobile application so as to change the transaction way of sourcing information and vehicle
information, which guarantee the logistics, information flow and capital flow work well in the urban
distribution information platform. At the same time, as the improvement of amount of distribution
business and vehicle capacity rate, the situation of empty road will decrease step by step, the
pressure of traffic will reduce, the consumption of fossil energy and the emission of vehicle exhaust
will decrease. And the air quality in our city will be better, our environment will be more
comfortable. Thus, the O2O commercial mode of urban distribution is the specific practice carried
out by green logistics.

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Data[J]. Journal of Management Sciences in China, 2015, 18(5):1-8. (in Chinese)
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techcrunch.com/2010/08/07/why-online2offline-commerce-is-a-trillion-dollar-opportunity/, 2010.
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335
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Utilization and Protection Research of the Island Resources in

China: A Case Study of Zhejiang Province
Shi-Biao WANG1,a,*, Cai-Cai YUAN1,b, Gong-Ming SHEN2,c
1
College of Economics and Management, Ningbo University of Technology, Ningbo, China
2
Resources and Environment Research Center, Chinese Academy of Fishery Sciences,
Beijing, China
a
shibiaow@hotmail.com, b549687818@qq.com, csgm@cafs.ac.cn
*Corresponding author

Keywords: Island, Resource, Utilization and protection, China

Abstract. China has a mass of island resources. For the exploitation, utilization and protection of
the island resources, it has a very important position and value in Chinese marine economic
development strategy. Through the research and investigation, based on the existing problems in the
island resources exploitation and protection, this paper analyzed the development and utilization
principles, and development purposes of island resources in China, and put forward the use patterns
and the development countermeasures on the basis of the classification type.

Introduction
Currently, the economic development of human society is faced with the historical transition, that
the transition from land to the ocean economy. CPC Central Committee on the Twelfth Five-Year
Plan proposed for the first time that "the development of ocean economy" [1]. The eighteenth
National Congress of the Communist Party of China clearly put forward to improve ocean resources
development, and develop the marine economy, protect the marine environment, and resolutely
safeguard national maritime rights and interests, and construct the marine power [2]. The plans also
stated that China must establish and improve ocean resource assessment and inspection system,
strengthen the protection of uninhabited islands, rationally develop the shoreline resources and
island resources, improve the island infrastructure, and construct some big or medium sized islands
with better conditions into the port logistics island, clean energy island or international tourist island
[3].

Development Situation of Island Resources in Zhejiang Province

Zhejiang Province is located in Chinese eastern coastal, located in the south wing of the Yangtze
River Delta, the largest number of islands and the most abundant island resource in China. Through
the investigation informed that currently the coastal waters of Zhejiang Province, the number of
island land area larger than 500m2 is 3,061 (including 2,875 uninhabited islands), accounting for
39.4 percent of the total in China, and accounting for 68.5 percent of the island number in East
China Sea [4]. Zhejiang offshore fishing grounds have 222,700 km2, and the estimated potential
fishery resource to be about 2,050,000 T, ranking first in China; Zhejiang beach resources area is
nearly 266,700 ha; Zhejiang island tourist resources is nearly accounting for 13.7 percent of those in
China; Zhejiang marine energy to be developed into tidal energy capacity is nearly accounting for
about 40.8 percent of those in China. The rich island resources in Zhejiang province, has a good
geographical advantages, a good industrial base, which makes the island resources in Zhejiang
Province have a big role in Chinese coastal development strategy.
2011, Zhejiang has made the 100 important islands (92 inhabited islands, and 8 uninhabited
islands) into the "Zhejiang Important Island Exploitation and Protection Plan" [5]. Although the
figure isnt big, they accounts for a larger proportion of the total of Zhejiang island resources. These

336
100 islands with a total area of 1,819km2, accounting for 96 percent of Zhejiang's total area of the
island; The island beach area is 313km2, accounting for 78 percent of Zhejiang's total area beaches;
The islands coastlines is total length of 2,470km, accounting for 53% of Zhejiangs island coastline .
In addition, these important islands have the rich ports, fisheries, tourism and other marine mineral
resources, especially the port resources. They are the ideal location area for the construction of large
deep-water port group. These important islands is nearby the Zhoushan fishing ground distribution,
so that they are Chinese important ocean fishing production base and are the excellent, exploitation
prospects with a national or provincial-level scenic spots, marine tourism resources, such as Putuo
Mountain, Shengsi Islands, Peach Blossom Island.

Exploitation and Protection Problems in Zhejiang Islands

For the exploitation and protection field in Zhejiang province, there are some problems are
found as Fig.1.
Lack of planning

Lack of regulations Lack of protection Ecological damage

Unperfect monitor and management mechanism

Extensive development and utilization methods

Problems

Figure 1. The exploitation and protection problems in Zhejiang islands.

Lack of Planning and Random Exploitation Activities
Until 2011, Zhejiang province issued "Zhejiang important island exploitation and protection
plan". Prior to this, the plan related to the utilization and protection of the island didnt exist,
especially for the uninhabited islands. But there is still a lack of support for policies and rules, and
the management of the implementation is still not satisfactory. Moreover, there is the island vague
question of the ownership and management for the island resources.
Serious Ecological Damage Islands
By the survey, the varying degrees of blasted islands, blasted reefs, reclaiming land from sea,
linking islands, enclosing the sea and embanking, quarrying and digging sand and other changes
activities in the island topography are found in Zhejiang coasts, serious and even causing the
disappearance of some islands and reefs. In addition, other destructive behavior of rare events are
found, such as the dumping of garbage and hazardous waste on the island, cutting mangroves,
dredging coral reefs, overfishing, indiscriminately gathering the island biological resources, etc. [6]
Inadequate Efforts to Protect The Island
Zhejiang is facing the East China Sea, so that the islands have a high number of important rights,
national defense, resource and ecological value. These special-purpose islands need the strict protection.
Because of the lack of effective planning and strong protection, some islands have already suffered
damage, and some islands are deserted or even long-termed carelessly or indiscriminately used, and
even the worse individual islands and reefs are gradually collapsed and disappeared.

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Lack of Provincial and Local Laws and Regulations
"Island Protection Law of People's Republic of China" has been implemented since 2010, but its
content is to protect the island and its surrounding ocean ecological systems. Many of the clauses
are in favor of principle requirements and operability is not strong, which result in the difficulty to
be applied at the local governments. The only one local legislation relating to the island in Zhejiang
province is the implementation of the "Ningbo City uninhabited islands protection regulations" that
was approved in 2004, but the ordinance is limited to the use scope of Ningbo City, and the rank of
local legislation is very lower.
Lack of an Effective Evaluation System and Management Mechanisms
Due to the lack of an effective evaluation system and the approval, supervision and enforcement
mechanisms, and the majority of the utilization managers are short of the ecological function and
the national defense capabilities and enough protection awareness, results in the serious disorder,
excessive, gratuitous situation of island exploitation and utilization, and leads to the lower
development level, low economic efficiency.
The Extensive Island Development and Utilization Methods
Currently, the majority of the island's development and utilization of Zhejiang is limited to
tourism development, but the island tourism positioning is very single and identical, most still in
level of the seaside tour or fishing tour. The characteristic of the island's tourism potential wasnt
fully tapped. In addition, it was more serious for the repeated construction phenomenon of close
range scenic regions, so as to form a number of unnecessary competitions. Most of the island's
tourism projects are also lack of specialty packaging and brand planning.

Development Principles and Purposes for Zhejiang Islands

Exploration and Utilization of the Islands
According to the characteristics of Zhejiang island resources, the comprehensive survey,
utilization, protection and other specific details and development planning of the island resource
should be introduced as soon as possible. Implement the investigation and the assessment of the
island resources and ecological condition. Provide the various kinds of safeguards measures, such
as the organization and leadership, the rule of law, capacity building, public participation, proposed
project management and financial security, etc. Implement the resource exploitation and ecological
island protection according to the principles of scientific planning, conservation priority, balanced,
category management, rational development and sustainable use. There are three main types of
island resources as Fig. 2.

Inhabited
Military islands Industy
Nature reserve Transport
Industry
baseline point Energy
Logistics and storage
etc. Agriculture and fishery
Tourism and entertainment
etc.
Agriculture and fishery
Special- etc. Uninhabited
purpose islands islands

Figure 2. Three main types and the development purposes of island resources.

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Development Purposes of the Islands
Define and strictly protect the special-purpose islands
Special-Purpose Island refers to the island with a special purpose or important conservation
values, including baseline point where the island, national defense purposes island, marine nature
reserve island, special purpose area residents of the island, and so on . Any organization or
individual shall not exploit such islands, and must strictly protect and closely monitor those. At the
same time, the relevant government organizations have to prevent spontaneous destruction of such
islands, and strengthen routine investigation and monitoring.
Scientific, reasonable and appropriate utilization of the inhabited islands, and strengthen ecological
protection
The inhabited islands should optimize the development and utilization method. Such islands can
be planed the development as the professional islands with public service function, or with island
tourism and entertainment function, or with the agriculture, forestry, animal husbandry and fishery
function, or with the industry function, or with the warehousing function, or with the transportation
function, or with the renewable energy use function, or with the urban and rural construction
function, and so on.
Moderate use of uninhabited islands
Uninhabited islands should be given the priority to the protection and appropriate use.
Governments should follow the dominant use of uninhabited islands, and propose the general
requirements of the development, utilization and protection for each island. Part of the islands be
adapted to the development and utilization planning should be developed as the tourist recreational
island, the transportation island, the industrial island, the warehousing island, the agriculture,
forestry, animal husbandry and fishery island, the renewable energy use island, the retention
category island, etc.

Island Resources Development and Utilization Patterns in Zhejiang

Based on the conditions of Zhejiang island resources, according to the above principles of
exploitation and development purposes, Island resources development and utilization patterns in
Zhejiang province may include the following:
Island Development and Utilization Pattern with the Value of National Defense and
Sovereignty
Exploitation pattern of such islands should continue to strengthen resource conservation and
sustainable use. The abundant marine living resources and the rich oil and gas resources have
provided a broad space for the development and utilization of ocean economic development. For the
islands suitable for military use, due to their larger areas and superior natural conditions, they can
be positively developed as the special tourism islands with the far shore. The tourism infrastructure
can also be conducive to the military use in the wartime.
Island Development and Utilization Pattern with The Value of Economic Profits
For the exploitation and utilization of these islands, part can be selected to develop the fisheries,
mining or ecological economy and fully to be tapped the potential of the island specialties, and the
other part can be selected to develop the island-land integrated economic model, such as the ports,
logistics, etc to achieve joint development profits. At the same time, needs to pay attention to
protection. Adhering to the sustainable development model, not only safeguards the rational
development and utilization of economic resources of the island, but also be conducive to long-term
protection of these island resources.
Island Development and Utilization Pattern with the Value of Ecological Environment
The exploitation and utilization of these islands should adopt ecological economy and tourism
economy pattern. For the ecological resources with possible exploitation value, they should be
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developed in the ecological and tourist way. For the island resource with the restrictions use, the
islands can be established as the ecological protection zone to achieve effective protection. In
addition, the island with extensive mangrove forests, coral reefs and other resources, as well as the
island with special conservation value of endemic local species, they can be developed into the
teaching, research and science base.
Island Development and Utilization Pattern with the Value of Social Cultures
Island has a social and cultural values, means the islands with the archaeological and scientific
value, or with cultural historical value, or with geological heritage value, and the islands with
typical island landscape value for people to travel and tourism. The development of such island,
should encourage the development and use of social and cultural resources in these islands, and
accelerate the development of social and cultural resources of the islands, classify and protect the
island areas at all levels, and adopt a sustainable island tourism-oriented development pattern.

Countermeasures and Suggestions

Based on the above Zhejiang island resources characteristics, exploitation principles, purposes
and patterns, the premise of development and protection, surrounding the construction target of
"island province", gradually promote the sustainable exploitation of island resources and utilization.
To achieve the goal, especially propose the following suggestions.
Firstly, study and formulate the Zhejiang laws and regulations on island protection and utilization,
verify the regulatory bodies for the island resources, strengthen the island resources and
environmental investigations, improve government supervision, and prevent and reduce the island
destructive development mode.
Secondly, comparative analyze the development modes in other regional or local island resources,
use for reference from their successful experience, sum up from the failure experiences,
scientifically research, formulate and publish the short, medium and long term planning on the
distinctive island resources development and conservation for Zhejiang province.
Thirdly, step up the publicity efforts, strengthen government guidance, hold on island
development bidding under the open and fair method, conduct the island protection technology
researches, standardize the island development and utilization behaviors, promote the green,
environmental protection, low-carbon, energy-saving ideas, strengthen the protection
consciousness of island residents and developers, explore the island sustainable development
pattern, and accelerate promote the island to protect the healthy development based on the
technological innovation.
Fourthly, roundly promote the island resources investigation and protection, and highlight the
development and protection of the key islands. For some inhabited islands and the special islands
with the important economic development value, formulate the protective measures according to
local conditions, scientifically select development mode, and implement an effective monitoring
mechanism to accelerate the island's economic and social sustainable development in Zhejiang
Province.
Fifthly, for the islands with the value of national defense or territorial waters basis points,
strengthen the infrastructure construction, formulate the scientific and standardized inspections,
monitoring and protection measures, and ensure national sovereignty and territorial integrity. At the
same time, continue to strengthen ecology and resource conservation in the core area of nature
protection zone.

Acknowledgement
This research was financially supported by Chinese Modern Agricultural Industry Technology
System Project (CARS-49), Zhejiang Province Philosophy Social Science Planning Project
(13XKGJ006YB) and Ningbo University Research Project Start-Up Funds (2009128).

340
References
[1] The Twelfth Five-Year Plan for National Economic and Social Development-of the Peoples
Republic of China [R], 18th October, 2010.
[2] Report to the Eighteenth National Congress of the Communist Party of China [R], 8th
November, 2012.
[3] The Twelfth Five-Year Plan of Zhejiang Province [R], 28th February, 2011.
[4] Guofu Liu, Guomo Zhou, Zhiqiang Shan, etc. The Research Report for the Development and
Protection of Island Resources in Zhejiang Province[R], 28th October, 2011. The website of Cadre
Institute of CPC Jiangsu Provincial Commission Party School, http://www.zjdx.gov.cn/
1305/30949.htm.
[5] The Important Island Development, Utilization and Protection Planning in Zhejiang Province
[R], 23rd June, 2011.
[6] Zhenke Zhang, Yunfeng Zhang. The key issues and Countermeasures in the current island
exploitation in China [A]. Conference Proceeding of the Forum on Sustainable Islands
Development in 2010
[7] Jianbao Lu, Qi Liang, Weiyi Zhen. Chinese Island Resources Development and Ecological
Protection under the Dynamic Management Perspectivetogether discussion about "Island
Protection Law of People's Republic of China" [J]. Inquiry into Economic Issues, 2011, 10:
112-117.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on Tourism English Translation Based on Cultural Difference

Shi-Rong CUI
Zibo Vocational Institute, Zibo, Shandong Province, PR China, 255314
csr915@163.com

Keyword: Tourism English Translation, Cultural difference, Factor

Abstract: Tourism, especially foreign tourism, is a kind of typical cross-cultural communicative

activity. Tourism English translation is involved in all aspects of cultural differences in China and
western countries. Therefore, it is essential to master the skills when translating. Through analyzing
the four main factors that affect the tourism English translation and from the respective of Chinese
and Western cultural differences and different rhetorical in tourism English, this paper puts forward
constructive ideas to further improve the accuracy of English translation in travel information, and
thus make the tourists in the world have a better understanding of China.
With the rapid development of globalization and the acceleration of international exchange,
crosss-border tourism is showing a rapid development trend. As one of the preferred worlds
placesChina, a large number of monuments scenic spots attract the bulk of international tourists
come to China and visit it every year. The translation of tourist information becomes an important
way to promote and publicize the tourism landscape to overseas, and the translation quality of
tourism information can directly affect the Chinese tourism industry, especially the prospects and
development of inbound tourism market. Meanwhile, the English translation of tourism shoulders
the great mission of the heritage of the exchange between Chinese and Western cultures, and it
plays an important and immeasurable role in the dissemination of culture, the elimination of cultural
differences, the integration of culture, and the protection of cultural aspects etc.

Current Status and Problems of Tourism English Translation

China has five thousand years long history of cultural heritage, as well as 9.6 million kilometers
of vast territory, leaving valuable and rich tourism resources for people in the world, and each year
it attracts tens of thousands of international tourists to sightseeing. According to the investigation of
the motivation of Frenchman, German, American, Japanese and Englishman to travel to China,
international tourists that want to be able to understand traditional Chinese culture take up 100,
people that want to know about Chinese historic culture take up 80%, and people that want to sight
seeing take up 40%. It can be seen that the real charm of Chinas tourism resources is not the natural
scenery of landscape, what really attract people is the rich and mysterious culture connotation
hidden behind the beautiful scenery. However, the difference between Chinese and Western cultures,
different mode of thinking and perspectives, and the different understanding of the culture etc,
would bring some trouble to the travel and tourism activities, and then cause inevitable cultural
collision. Tourism English belongs to English of special purpose, its users mainly refers to the tour
guides. Tour guides communicate with tourists, the main purpose of which is to arouse interaction
in emotions, behaviors and attitudes. But in fact, due to the cultural difference always exists, and it
would often bring languages that would cause misinterpretation or misunderstanding to the tourists,
resulting in impact on the effective communication of correct information.

Factors that Affect the Tourism English Translation

The Complexity of the Language Itself
Tourism English translation, also the translation practice of Tourism profession, tourism industry
and activities, belongs to professional translation, is a social communication activity of tourism
across languages, society, time and space, and culture. During the English tourism translation, it is
342
necessary to pay attention to the English mode of thinking and expression, but also pay attention to
the English language with wording, thus resulting in the complexity of tourism English translation.
Because, language translation is not only reflected in the surface of language, but also is reflected in
communicative activities in the language level. In China, people that are engaged in international
tourism and other related industries have more or less gone through the training of English language,
however, this language training is often only limited to the sentence drills, voice imitation, and the
introduction of vocabulary and grammar, with little about types of culture and language habits, and
conversion activities etc. Therefore, mistakes in the English translation occur. therefore, this
presents us with a lot of requirements: when translating the tourism English, we should understand
the complexity of tourism English translation, be familiar with the using ways and habits of English
native speakers, understand correctly and use appropriately correct term for the context, as well as
the common form of language that both sides use, select appropriate pragmatic functions for
expressing emotions, and improve the English language skills of the translators.
Cultural Differences
Purposes of tourism English translation: let tourist whose mother tongue is English can read and
understand, and obtain intelligence information of the nature, customs, culture and geography from
it. Thus, the translator should pay attention to the particularity and complexity of the tourism
English translation, and note different social and cultural backgrounds conveyed in the text of
source language and target language. If we blindly translate according to the Chinese language
habits and words, it will conflict with the appreciating habits and aesthetic psychology of the
English nations. To this end, He Zhaoxiong wrote in Pragmatics Summary: In order to get
success in communication across the Chines and Western cultures, in addition to both sides use the
same language, they should also have some common knowledge or the same background
knowledge. In addition, people with different culture background, their mode of thinking also
worth special attention. Because people in the East and west have different cultural background, and
there is distinct difference in their mode of thinking. People in the west have the Bridge mode of
thinking, their ways of organizing thinking are usually for directly pass their meaning to each other,
like a bridge. However, the mode of thinking for people in the west is like stepping stone, they do
not express their meaning directly, instead, they use the roundabout and implicit way, like throwing
steeping stones one by one in the water. Listeners and readers can only understand the meaning of
the speaker or author by means of those steeping stones. When translating tourism English,
constant attention to the difference of the mode of thinking of people in the east and west need to be
paid, so that the translated text is more likely to be accepted by international tourists.
Determination of Context
The first concept of Context was brought up in 1930s by the anthropologis Malinowsky.
Malinowsky thought that:context is the most important factors in all translation, and its importance
is greater than all the rules, theories and basic semantics. If the tourism English translation wants
to obtain the desired results, the context of translation should be of full consideration, and the
complex context should be noticed. The concepts o a variety of contexts are as follows:
1. The contextinternal environment of the discourse.
2. The context of the scenethe surrounding circumstances, what happened, location, time, the
relationship between the participants, the mental emotion of the participants, communication
channels etc, when the discourse happens.
3. Cultural contextrefers to the specific social cultural background, traditional thinking of history
and culture, outlook on life, values, emotional and social psychology etc, when using the language.
Phenomenon of Vacancy
With the rapid development of economic globalization and technology, especially the rapid
development of multimedia technology and the widespread of internet, the phenomenon of vacancy
has become a common and long-term problem in cross-culture. The existence of the vacancy

343
phenomenon is the inevitable product of a nation in the process of conception of the world, as
opposed to other peoples of the cognitive process differences. Culture vacancies include:
1. Character Vacancy
The formation of a nations character has its profound historical origins, which is the product of
certain cultural environment, politics, economy, philosophy, society, and thus establishing the
national character of their own characteristics and styles. For different ethnic groups, people have
different views. For example, views towards the American are Practical realistic; views towards
the French are warm romantic; views towards the German are punctual rigorous; views
towards the Italian are unrestrained free and easy and so on.
2. Vacancy in Mode of Thinking
Vacancy in mode of thinking is unique to a nation, while another nation is lack of defective ways
of thinking. The east and west belong to completely different culture system, and therefore, form
two types of completely different ways of thinking. People generally believe that westerners have
strong logical thinking, while the Asians are more emotional and pay attention to intuitive
experience, and are accustomed to the intuitive sort of understanding.
3. Emotional Vacancy
Westerners have a demonstrative way of doing things. This extrovert type of characteristics
origins from the western culture of openness, factors that determine the openness include western
unique geographical environment, historical features, and the specific law reflected in the
development of capitalism so far, and each of these factors are essential.
4. Vacancy of Space Concept
Different cultural groups have different views for the use of space, including personal areas,
physical distance, the attitude of the bustling crowds and crowdedness etc.
The application of the vacancy theory is very strong, it could help people find, respect, prevent,
eliminate and understand the not corresponding or existing vacancy phenomenon in different
culture, and in order to serve for the conduction of smooth exchanges and cooperation with different
countries and different culture groups, strive to obtain the best results.

Strategies to Deal with Cultural Differences in Tourism English

Due to the huge difference between English and Chinese, the stylistic and syntactic difference
cannot be avoided. With many cultural differences between China and west countries, and
particularity of travel information in certain degree, when translating tourism information, we must
not apply mechanically, scripted, rigid, and should be flexible. Under the premise from the original
text, to properly deal with relevant cultural factors in the text, and make the appropriate translation
that foreigners could understand, and to meet the urgent and strong desire of foreigners that want to
know Chinese customs through travel. For questions in the tourism, the author adopts the following
main processing strategies:
Translation of Scenic Spots and Attractions
In translation related to scenic spots and attractions, most people advocate the adoption of a
transliteration plus free translation, which can on the one hand facilitate the understanding of
international tourist, and could on the other hand help pass the correct names information, and
virtually make the distance between tourists and Chinese culture closer, and deepen their mutual
communication. Such as could be translated as Taihang Mountain, could be
translated as Badaling Great Wall, could be translated as Tiananmen Square, with
the first half of transliteration, and another half of free translation, these two could be combined
well with each other, and the international tourists could understand by reading it. Of course, not all
names of the attractions could be like this. For example, in the translation of some attractions,
translation words should emphasize more live performance and atmosphere, so when dealing with
some rich poetic of its heritage or cultural connotations attractions, it only needs to be simple, bright,
expressive, to free translate where you could.

344
Translation of the Folk Customs
Focus on the understanding and translation of folk customs: for example, to translate the sentence
In rural areas, before the burial of the dead, people will ask geomancer to see the geomantic omen,
and to tell the two opposing principles in nature. Two opposing principles in nature and
geomancy are both traditional cultural concepts with Chinese characteristics, similar to the
western environmental geography, but in fact, their connotation and extension is of great difference
with western so-called environmental geography, which is only a discipline that makes objective
research of the comprehensive relationship between the environment and geography. However, in
traditional Chinese culture, two opposing principles in nature and geomancy are not only
related to geography, but also related to beliefs. When translating, alleged implication could be
translated, and plus an appropriate comment. In this method, the translation text is longer, but it
could make listeners and readers that have no traditional cultural background understand them
clearer. It also expands the horizons of international visitors, and deepens their understanding and
memory of Chinese traditional culture and memory.
Cultural Borrowing
The so-called cultural borrow, refers to borrow foreign culture more well-known characters or
events to assist to explain some of the unique content of Chinese culture. The benefit of doing so is
to allow international visitors to compare Chinese culture with western cultures, increase their
impression, and help them better understand the specific content of Chinese culture. For example,
once Premier Zhou Enlai was in the reception of foreign guests, when mentioning Liang Shanbo
and Zhu Yingtai, he told the translator directly that this story could be translated similarly as the
western Romeo and Juliet. Therefore, when hearing Romeo and Juliet, the tourists would have a
positioning of an image in their minds, so they could understand the love story with Chinese
characteristics.
Teleological Application Awareness
In the application of tourism English, the Chinese and Western culture difference is always
inevitable. The theory of translation purpose is to emphasize the translation to base on the expected
function of translated text, and determine their text translation strategies. In the translation teaching
process of tourism English, we could enhance the awareness of students to apply this theory of
purpose, and pay attention to the students traditional culture and cultivation, so that they could
better master proper scale in tourism English translation, appropriately use various effective
translation strategies, interpret properly Chinese unique culture, enhance the deep understanding of
Chinese culture of international tourists, and spread actively and comprehensively Chinese
characteristic culture, and promote the rapid development of Chinas tourism industry.

Conclusion
It can be seen from the above analysis report that, for cultural difference in tourism English
translation, in the development of Chinese tourism industry, its status has become increasingly
important and gradually has been extended to the whole world. Therefore, the topic of paying
attention to the development of the tourism industry will also be of gradually concern by people. As
a result, tourism English translation will become increasingly important, after all, the first contact of
international visitors are the current translation of written materials of each spot. Therefore, we
should do our utmost to improve the level and efficiency of tourism English translation. In the
process of translation, we must always keep in mind the several suggestion and hard principles
derived from the above analysis, and improve the level of tourism English translation by using these
method. After doing that, it is believed that our tourism English translation will be of a higher level.

345
References
[1] Xie Xiuhua, Huang Yangqiong. Analysis of Tour Guide Reception Based on Cultural
Differences[J]. Journal of Changchun Normal University, 2011, (02).
[2] Wang Jing. The Application of Theory of Purpose in Translation[J].Journal of Zhejiang Wanli
University, 2008, (6).
[3] Wu Bing. Translation Interpretation Course (Revised Edition)[M]. Beijing: Foreign Language
Teaching and Research Press, 2009.
[4] Wang Xiaowei. Intercultural Consciousness and Tourism English Translation[J]. Journal of
Anyang Institute of Technology, 2008, (3).
[5] Li Beilin. Thingking on Tourism English Translation and Local Culture Docking[J]. Journal of
South China University of Tropical Agriculture, 2009, (1).

346
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Impact of Working Hours on the Health, Social Life & Performance on

Centralized Operation Division (COD) Employees of Dubai
Islamic Bank Pakistan
Farhana Shoukat1,a, Sheeraz Ali2,b, Dr. Asif Kamran3,c,*
1
PHD Scholar, Institute of Business & Technology (IBT), Karachi, Pakistan
2
PHD Scholar, Institute of Business & Technology (IBT), Karachi, Pakistan
3
Department of Management & Social Sciences, Institute of Business & Technology (IBT),
Karachi, Pakistan
a
farhanashoukat@hotmail.com, bsheerazali_1988@hotmail.com,c asifkamrankhan@hotmail.com
*Corresponding author

Keywords: Health, Social Life, Performance, Employees, Banks.

Abstract. This study investigated the impact of late working hours on the health, social life and
performance of the employees of Centralized Operations Division of Dubai Islamic Bank Pakistan
Limited. More often than not, work weight and long working hours without representatives
consideration decrease workers occupation fulfillment furthermore gravely impact soundness of
the workers, make reason of tiredness and work stress. They prompt remain efficiency of
representatives lower than their potential and will likewise decrease long haul and transient
profitability of workers and the association. The representatives who experienced to work long
working hours concede a larger amount of anxiety, indications of gloom and lose of wellbeing. A
very much organized survey was outlined and used for get-together the information. The results
reported in this study, endorse that late working hours influence the health, social life and
performance of the representatives. This result is widely unsurprising considering prior organization
composing, keeping the deciding objective to secure specific data of working hours and effects on
the example laborers, various request are acquainted with the respondents and appropriately
dissected. Working late hours has negative effect on the execution of the representatives of COD
and discussion of all the results demonstrates the speculations.

Introduction
Every employee of organization keeps desire to give better performance but his performance
decline due to increase in working time. (Aasia Manzoor, Vol.2)[1]
Most of the time, work pressure and long working hours without employees care decline
employees job satisfaction and also badly effect health of the employees, make reason of tiredness
and work stress. They lead to remain productivity of employees lower than their potential and will
also decline long term and short term productivity of employees and the organization. The
employees who experienced to work long working hours admit a higher level of stress, signs of
depression and lose of health. (Golden1, 2012)[2]
Employee stress level can be increased in result of extended working hours. Due to work load
rational anxiety increases in the employees and in the result performance get affected. Employees
performance, their families and community are badly affected because of long working hours. In the
research, it is also highlighted that long working hours have more inflexible association with risk, as
many factors are influenced by long working hours in which job, social life, non-working duties,
employee control and performance of the employees. Many factors are commenced like insomnia,
less time for the family and ignorance in other personal responsibilities due to the pressure of late
working hours. All these factors have negative effect on human body i.e. tiredness, negative mind-
set, confusion and discomfort that tends to decline in the performance. (Muhammad Salman
Qureshi, 2012)[3]
347
 According to (Joanne White MSc, 2003)[4], long working hours tend to poor work life balance
and adversely effect on family life. They also agreed that long hours working pattern are probably
to have much more difficult relationship with health and safety.
Dubai Islamic Bank has a unique distinction of being the world first Islamic bank, a pioneering
institution that has combined the best of traditional Islamic values with the technology and
innovation that characterize the best of modern banking. Dubai Islamic Bank Pakistan Limited
(DIBPL), commenced operations in 2006. Since then, DIBPL has undertaken major initiatives to
expand its branch network across the country. The Bank is offering state-of-the-art Sharia
compliant products that effectively compete with those being offered in the market by conventional
banks.
Dubai Islamic has comprehensive policy of work schedule, according to the policy of the
working hours are as follows:
Monday to Thursday 09:00 am to 05:30 pm
Lunch Break 01:30 pm to 02:30 pm
Friday 09:00 am to 06:00 pm
Lunch & Prayer Break 01:00 pm to 03:00 pm
Saturday 09:00 am to 01:30 pm
Note: During Ramadan office timing on all working days will be as per SBP directives.

Literature Review
A tremendous and multi fields writing focuses a considerable measure of key variables, for
example, workplace, administration bolster, work load and so forth in deciding the upsetting the
work can be and its impact on representative physical and emotional wellness. (Usman Bashir,
2010)[5]
In numerous associations, particularly in banks representatives are under over work weight and
they have routine to stay in the workplace long time in the wake of shutting hours. All things
considered, if the workload is over, it is essential that the associations ought to contract more
competent hands as indicated by their associations interest for representatives so that their
representatives can live push free and amicable lives. (Muhammad Rizwan, 2014)[6]
Reasons for anxiety are numerous like work burden, cuts in staff, change at work, long work
hours, movement work, absence of supervision, deficient preparing, improper working conditions,
too overwhelming obligations and poor relations with associates. Gigantic and multi fields writing
focuses a great deal of key components, for example, workplace, administration bolster, workload
and so on in deciding how distressing the work can be and its impact on representative physical and
psychological wellness. (Muhammad Naeem Shahid, 2012)[7]
City of the nation like Karachi being considered as exceptionally occupied and quick moving city
and the work load and weight and long working hours influences the level of worker employment
fulfillment. It is likewise found that work weight additionally has feeble connection with
representative employment performance in banking sector of Pakistan. (Sobia Shujat, 2011)[8]
Worker performance is influenced by work-life strife and work over-burden in light of the fact
that in banking sector working hours are draw out, it gets to be intense for the representatives to
oversee time for their families and individual life. Representative performance can be enhanced by
actualizing procedures (like employment sharing and partitioning an assignment). By separating an
occupation workers will feel unwind will have the capacity to perform better in the organization.
(Saira Ashfaq, 2013)[9]
Work over-burden is the most essential of the considerable number of determinants bringing on
anxiety in the work settings that laborers tackle at their employments. The overwhelming task of
assignments, inaccessible due dates and long working hours join in the idea of work over-burden.
(Dr. Khalid Khan, 2013)[10]

348
Problem Statement
As working hours play an important role in the performance of the employees and also affect
their health and social life. If employees adhere or do work according to the define policy of
working hours, they can easily manage their social life and will be more fresh and motivated on
work and also take care of their health. In this study, I am more anxious to know about the impact
of working time on the performance, health and social life of COD employees of DIBPAK.
Objectives
Following are the objectives of the study:
1) To find out that the working hours affects the health of the employees.
2) To find out the impact of late sitting on performance of the employees.
3) To find out the working of late working hours disturb the social life of the employees.
Hypotheses
H1: Employees social life disturbs due to late working hours.
H2: Employees health is affected due to long working hours.
H3: Employees performance decreases due to late working hours.
Research Methodology
Primary data was gathered through an all around organized questionnaire for this specific study.
All out 30 questionnaires were filled by 30 officials of Centralized Operations Division of Dubai
Islamic Bank Pakistan Limited. MS Excel 2010 was utilized with the end goal of estimation and
investigation of the information.
Data Analysis
For dissecting the gathered Data and testing the Hypotheses, Chi Square strategy was utilized.
Chi Square Test
As chi square (X2) measurement is utilized to explore whether disseminations of straight out
variables vary from each other. Fundamentally clear cut variable yield information in the
classifications and numerical variables yield information in numerical structure. The Chi Square
measurement thinks about the counts or tallies of straight out reactions between two (or more) free
gatherings. Chi- Square method is necessary and essential to use for finding out the relationship
among late working hours, social life, health and performance of the employees.

Table 1.1. Impact of Working Hours on Social Life.

349
 Table 1.2.

Table 1.3.

Hypothesis 1
In Table 1.1, 1.2 & 1.3 Observed and Expected frequencies are stated and after computation Chi
Square, the values of P show that there is a significance relationship between working hours and
social life of the employees of COD, in light of the fact that when the p-worth is less than the alpha
than the null hypothesis is rejected and alternate hypothesis is acknowledged. Here, H1 is
acknowledged and come into the decision that the working of late hours is disturbing the social life
of the employees of COD of DIBPL.

Table 2.1. Impact of Working Hours on Health.

350
 Table 2.2.

Table 2.3.

Hypothesis 02
In Table 2.1, 2.2 & 2.3 Observed and Expected frequencies are stated and after computation Chi
Square, the values of P show that there is a significance relationship between working hours and
Health of the employees of COD, in light of the fact that when the p-worth is less than the alpha
than the null hypothesis is rejected and alternate hypothesis is acknowledged. Here, H1 is
acknowledged and come into the decision that the working of late hours is affecting the Health of
the employees of COD of DIBPL.

Table 3.1. Impact of Working Hours on Performance.

351
 Table 3.2.

Table 3.3.

Hypothesis 03
In Table 3.1, 3.2 & 3.3 Observed and Expected frequencies are stated and after computation Chi
Square, the values of P show that there is a significance relationship between working hours and
performance of the employees of COD, in light of the fact that when the p-worth is less than the
alpha than the null hypothesis is rejected and alternate hypothesis is acknowledged. Here, H1 is
acknowledged and come into the decision that the working of late hours is affecting the
performance of the employees of COD of DIBPL.

Conclusion
The importance of working hours in the Banking Industry has been highlighted in the past
compositions. The reason for this study is to take a gander at the effects of working hours on the
health, social life and performance of the representatives of Centralized Operation Division of
Dubai Islamic Bank Pakistan Limited. Also, sub targets are created to energize an unmistakable
achievement of the explanation behind the study. These included 1) to find out that the working
hours affects the health of the employees 2) to know the impacts of late sitting on employee
performance 3) to find out the working of late working hours disturb the social life of the
employees.
The outcomes reported in this study, prescribe that late working hours affect the health, social life
and performance of the employees. This outcome is extensively predictable with earlier
administration writing, keeping in mind the end goal to acquire particular information of working
hours and impacts on the specimen workers, diverse inquiries are introduced to the respondents and
accordingly analyzed. Working late hours has negative impact on the performance of the employees
of COD.
Discussion of all the results proves the hypotheses; H1: there is a significance relationship
between working hours and social life of the employees means Employees social life is disturbing

352
due to working of late hours. H2: there is a significance relationship between working hours and
health of the employees means that if employees do late sittings their health is affected. H3: there is
significance relationship between working hours and performance of the employees means that if
employees do work more than 9 working hours, their performance are decreased.
Recommendation
I recommend that Centralized Operations Division of Dubai Islamic Bank Pakistan Limited and
all banks should follow the time schedule release by the State Bank of Pakistan. Because balanced
working life has positive effects on productivity, worker self-rated performance, and worker
satisfaction. The strongest force behind the spread of more decent working time arrangements is
both productive and socially healthy. The performance of the whole organization is depended on the
motivation, satisfaction and performance of the employees.

References
[1] Aasia Manzoor, H. A. (Vol.2). Investigation the Impact of work stress on job performance:A
study on Textile sector of Pakistan. Asian Journal of Business and Management sciences, 20-28.
[2] Golden1, L. (2012). The Effects of Working Time on Productivity and Firm Performance:a
research synthesis paper. Geneva: International labour Office.
[3] Muhammad Salman Qureshi, J. M. (2012). Impacts of Late Working Hours on Employees
Performance: A Case Study on Engineers in Telecom Company of Pakistan. Lahore: Institute of
Business and Management, UET, Lahore.
[4] Joanne White MSc, J. B. (2003). Working Long Hours. UK: Health & Safety Laboratory.
[5] Usman Bashir, M. I. (2010). Impact of Stress on Employees Job Performance A Study on
Banking Sector of Pakistan. International Journal of Marketing Studies, 122-126.
[6] Muhammad Rizwan, M. A. (2014). Investigating the Causes of Job Stress:A Study on Banking
Sector of Bahawalpur, Pakistan. International Journal of Learning & Development , 227-241.
[7] Muhammad Naeem Shahid, K. L. (2012). Work Stress and Employee Performance in Banking
Sector Evidence from District Faisalabad, Pakistan. Asian Journal of Business and Management
Sciences , 38-47.
[8] Sobia Shujat, F.-E.-A. C. (2011). Impact of Work Life Balance on Employee Job Satisfaction
in Private Banking Sector of Karachi. Journal of Management and Social Sciences, 8-15.
[9] Saira Ashfaq, Z. M. (2013). Impact of Work-Life Conflict and Work over Load on Employee
Performance in Banking Sector of Pakistan. Middle-East Journal of Scientific Research, 688-695.
[10] Dr. Khalid Khan, A. I. (2013). Occupational Stressors and Employee Performance in Service
Sector of Lahore, Pakistan. Journal of Research (Humanities), 115-141.

353
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Hybrid Teaching Practice to Enhance Students Engagement:

Case of Ibt, Karachi
Adnan Asghar Ali1,a, Dr. Asif Kamran2,b,*, Hammad Tahir3,c
1
PhD Scholar: Department of Management Science, IBT Karachi, Pakistan
2
Associate Dean: Faculty of Management Science & Social Science, IBT Karachi, Pakistan
3
PhD Scholar: Department of Management Science, IBT Karachi, Pakistan
a
adnan_asghar_ali@hotmail.com, basifkamrankhan@hotmail.com, chammad02@gmail.com
*Corresponding author

Keyword: Lecture Method, Innovative Teaching & Learning, Students involvement/engagement,

University & Industry Linkages, Higher Education, University and Learning Society

Abstract. Everybody who has ever taught a class has encountered a circumstance where a few
students are more engaged with what goes ahead in the class than others, so during lecture teachers
association with student to be more alert and energized, thats why it considered as a positive
connection between student engagement and their achievement. Most of time experienced,
hesitance of students to make inquiries, talk about topics problem or generally take an interest in
class. This study provides such a new teaching practice (Hybrid) that enhances students attention
and actively participates in class by discussion. The hybrid teaching system in this study is defined
as a method that introduced industrial professionals as a guest speaker from relevant field as well as
continuing regular face-to-face classes. This is qualitative and quantitative or mixed research work,
where using 06 questions based close ended questionnaire with five points Likert scale and 02
open-ended questions were asked. The 67 survey forms are filled by attendees out of 73 in guest
lecture session. As a result IBT students found this guest speaker session as interesting, highly
engaging and deeply learnt by industrial expert to their respective field.

Introduction
Instructional exercises are a typical integral system for getting understudy engagement with
material secured in lecture, as understudies realize more intense comprehension by being included
in little gathering talks. Information spread has been the prime mode of passing on data to huge
groups of observers since the start of history, and keeps on being the most widely recognized
system for adult (Bligh.D)[3]. To keep up an upper hand universities need to expand realistic
viewpoints and champion closer associations with industry. There is presently wide affirmation that
the accomplishment of WIL (work integrated learning) at universities relies on a nearby
organization with industry (Wright)[17]. Students look as a passive receiver during the lecture and
most probably their level of engagement during lecture is considered only note taking. Students
engagement refers as, a way that involve with a task (Biggs)[2] and (Laurillard)[12] defined that
students association during lecture enhanced by promoting discussion. As compare, hybrid
teaching method comprises an educational outlook change (Nunan)[14], whereby the emphasis
changes from teaching method to understudy learning. Eventually, the instructive objective of most
adaptable methods to enhance students engagement and their dedication towards learning
(Alexander)[1]. However IBT, Karachi, Pakistan (Institute of Business & Technology) realized to
furnish understudies with an essence of everything that business industry has to offer, the Faculty of
Management & Social Science directed its undergrad unit, as an advancement of courses by current
industry experts. ORIC (Office of Research, Innovation & Commercialization) and Registrar Office
of IBT, Karachi decided to acquaint instructional exercises with the unit, to give understudies a

354
chance to talk about trends of industry and clear up material that secured in lecture, and also to take
into consideration nonstop criticism both from the instructor and students.

Literature review
The usual, instructive configuration of in college educating has been characterized as "the
consistent work by one individual for around 50 minutes to a to a great extent latent beneficiary
crowd (Butler)[5]. Regarding time and college funding, a solitary address to a huge gathering is
significantly more practical, from the viewpoint of a college (Costin)[6].For the reasons of
education, the instructional exercise arrangement is considered as the "conventional" presentation
model, particularly including a week by week address (Dowling)[8]. The purpose of lecture is to
dissemination of information and additionally the promotion of thought, educating of behavioral
skill, change of states of mind and incorporate differed techniques that need to be included
(Brown)[4] but the most usual instructional exercise to engage the students during lecture by
incorporating in little gathering talks exercise (Sweeney)[16].This connection is contended to be
simple to the understudies' learning procedure (James)[11], as the educator turns into a facilitator to
learning, rather than the more usual, dull part of the speaker (Cox)[7].

Industry-University Ties
During the previous quite few years a major change has been found in the way policymakers
about advanced education. Rather than the past-when advanced education was a piece of social
arrangement but today it is progressively considered as a basic segment of national and provincial
financial approach. Universities are no more expected that would work in isolation; rather, they are
seen to be shared players who work nearly with industry as well as with community and
government. They are a necessary piece of the national or provincial development frameworks
(Mowery.D.C)[13] and a basic segment of the advancing triple helix in which universities,
government, and industries change their parts through association (Etzkowitz)[9].Thats why,
higher education institutes are looking towards industries for active participation in research and
academia teaching. Both industries and universities incline toward the learning difficulties to be
founded on the necessities of work to exactly reflect real work circumstances that clearly add to
business results. (Peters)[15] has recognized that, industrially supported exploration gives
understudy with introduction to certifiable exploration real world issues and industrially supported
research gives an opportunity to students work on challenging research program. Universities can
add their part for technological innovation in a respective ways, including: directing exploration in
innovative fields applicable to industry, giving specialized help to nearby firms, teaching all around
prepared experts, and supporting staff to take part in counseling and commercialization exercises
(Geiger)[10].

Statement of Purpose
During lecture students seem as a passive receiver and considered note taking only. The purpose
of lecture is not to complete the topics given framework of time but additionally need to promote
students thought and educating of behavioral skills to incorporate new teaching method to enhance
students engagement and their dedication towards learning. IBT, Karachi (Institute of Business &
Technology) realizing to provide understudies acquaint instructional exercises with the unit of
academic and industrial professionals, to give understudies a chance to talk about and clear up
material secured in lecture, and also to take into consideration nonstop criticism both from the
instructor and students.

355
Objectives
To enhance students engagement by providing guest speaker/industrial expert. To enhance
students learning outcome by sharing experiences of expert. To understand the students perception
about guest speaker session. To understand IBT students perception about a hybrid teaching system

Methodology
In order to compare the students perception about guest speaker/industrial expert session with
old traditional face to facing teaching system. Attended guest speaker session and 5 points Likert
scale based close ended questionnaire were distribute among 73 attendees of guest speaker session
where 67 students completely responded to the questionnaire. There are six questions were asked
that is: (1) Speaker session was beneficial addition to the class lectured, (2) I got conversation
sufficient chances for clarification and feedback. (3) I value learning from practicing industrial
expert of field, (4) I found depth understanding about my core field, (5) I found session to be
engaging & interesting, (6) Overall, I enjoyed participating this session
There are two open questions were then asked after the guest speaker session and the reactions of
these questions displayed as world cloud with every word's size relative to its predominance in the
reaction. (1) Which were the best traits of guest speaker?, (2) Any suggestion about guest speaker
session

Presentation of Data
Students responses
To understand the students perception and engagement about guest speaker session by
introduced an industry expert to deliver a lecture of IBT business students, six questions based close
ended question used as a tool and there are various responses of students from strongly disagree to
strongly agree.

Table 1. Students responses.

Questions Strongly Disagree (%) Disagree Unable to Comment (%) Agree Strongly Agree (%)
(%) (%)
1 0.25 1.93 5.67 88.93 3.22
2 3.32 13.04 0 71.77 11.87
3 0 0.97 1.11 4.83 93.09
4 1.06 2.81 2.33 65.43 28.37
5 0.23 0.37 0 12.69 86.71
6 0 0.12 0.32 6.55 93.01

The Table 1 shows the each question responded by session attendee that helped to understand
students perception about new hybrid teaching system in IBT Karachi for their undergraduate
business faculty students and also helped to understand participants engagement during this
advance teaching method. Individually six survey questions graphically represents students
responses of close-ended questions from strongly disagree to strongly agree in percentage as shown
in Fig. 1.

356
 120

100
SA (%)
80 A (%)
60 UTC (%)
40 DA (%)

20 SDA (%)

0
1 2 3 4 5 6

Figure 1. Students responses percentage to six survey questions.

Students statements of agreement

In Fig. 2 the detail of students agreement to six questions is defined. There are three questions
that have received high positive value that were question three, five and six: I value learning from
practicing industrial expert of field; I found session to be engaging & interesting; Overall, I enjoyed
participating this session similarly there are three questions that have received most negative value
that was one, two and four: Speaker session was beneficial addition to the class lectured; I got
conversation sufficient chances for clarification and feedback and I found depth understanding
about my core field.

120

100
% of agreement

80

60

40

20

0
1 2 3 4 5 6
Total Disagree (%) 2.18 16.36 0.97 3.87 0.6 0.12
Neutral 5.67 0 1.11 2.33 0 0.32
Total Agree (%) 92.15 83.64 97.92 93.8 99.4 99.56
Total (%) 100 100 100 100 100 100
[

Figure 2. Students agreement percentage to six survey questions.

The question three, five and six result of session attendees highly positive that clearly showing that
IBT students found this guest speaker session as interesting, highly engaging and deeply learnt by
industrial expert to their respective field but question two indicates that students got minimum
framework of time to talk with industrial expert about topic and other new trends in their respective
field.

357
Open-ended questions responses
Two open ended questions responses confirmed and explained the responses of six close-ended
questions. The 67 students responded to question one about practical approach of guest speaker and
remaining twenty two students responded about field related real time examples. The question two
responded by sixty-seven students about guest lecture session that were to call industries expert
frequently during their semester and also oblige hybrid approach of teaching system in IBT.

Figure 3: Wordle word cloud of traits of guest speaker

Figure 3. Wordle word cloud of traits of guest speaker.

The wordle word cloud with each words size indicating the most common terms students used in
response of first open-ended question about the traits of guest speaker, that was teaching style,
practical approach, experienced and real time examples, soft spoken and personality as shown in
Fig. 3.

Figure 4. Wordle word cloud of students suggestions about suggest speaker session.

The wordle word cloud with each words size indicating the most common terms students used in
response of second open-ended question about guest speaker session regarding to improvement that
was conduct guest speaker session frequently during semester, increase the time duration of guest
lecture and provide the contents and recorded material regarding lecture as shown in Fig. 4.

Conclusion
University-industry linkages turned into an essential component in the advanced education
arrangement hover even in developed nations just in the last some portion of the twentieth century.
This was considered as a method for keeping up riving edge research, exchange and utilization of
information for social advancement. Institute of Business & Technology (IBT Karachi) provided to
their student a hybrid instructional exercises with the unit of academic and industrial professionals,
to give understudies a chance to talk about and clear up material secured in lecture, and also to take
into consideration nonstop criticism both from the instructor and students. In order to compare the

358
students perception and engagement about guest speaker/industrial expert session with old
traditional face to facing teaching system. Six questions were asked and there are three questions
that have received high positive values 93.09%, 86.71% and 93.01 that were question three, five
and six. Further two open-ended questions asked about traits and suggestion. The seminar attendees
responded about guest speaker traits by numbers of words that were teaching style, practical
approach, experienced and real time examples, soft spoken and personality) and second question
about the suggestion of guest lecture for future improvement, students use the words that were
(conduct guest speaker session frequently during semester, increase the time duration of guest
lecture and provide the contents and recorded material regarding lecture).

References
[1] Alexander, S. (1999). An evaluation of innovative projects involving communication and
information technology in higher education.
[2] Biggs, J. (1987). The Process of Learning (2nd Edn). Sydney: Prentice-Hall.
[3] Bligh.D. (1998). Whats the use of lectures? Intellect.
[4] Brown, G. A. (1989). Lectures and Lecturing. Oxford.
[5] Butler, J. A. (1992). Use of teaching methods within the lecture formate. 11-25.
[6] Costin, F. (1972). Lecturing versus other methods of teaching. British Journal of Educational
Technology, 4-31.
[7] Cox, E. C. (2000). Key facilitation skills for effective online discussion groups: Herding cats
the Piccadilly Circus. International Distance Education and Open Learning Conference Adelaide.
South Aurtralia.
[8] Dowling, C. G. (2003). Do hybrid flexible delivery teaching methods improve a accounting
students' learning outcomes? Accounting Education, 373-391.
[9] Etzkowitz, H. a. (2006). Universities and the Global Knowledge Economy: A Triple Helix of
University-Industry-Government Relations. Continuum International Publishing.
[10] Geiger, R. a. (2009). Trapping the Riches of Science: Universities and the Promise of Econoic
Growth. Harvard University Press.
[11] James, R. (1978). The tutorial, In R B King (Ed.), tutoring. Preth: Research Unit in University
Education. The University of Western Australia.
[12] Laurillard, D. (1993). Rethinking University Teaching. Routledge.
[13] Mowery.D.C. (2005). Universities in national innovation systems J. Fagerberg, et al. (eds), The
Oxford Handbook of Innovation. Oxford University Press.
[14] Nunan, T. (2000). Rethinking the ways in which teaching and learning are supported. Journal
of Higher Policy and Management, 85-98.
[15] Peters, L. S. (1982). University-Industry Research Relationships, National Science Foundation.
[16] Sweeney, J. O. (2004). Traditional facetoface and webbased tutorials: a study of university
students' perspectives on the roles of tutorial participants. Teaching in Higher Education, 311-323.
[17] Wright, R. (2008). How to get the most from university relationship, MIT Sloan Management.
75-80.

359
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Role of Ibt Karachi CSR Society to Develop Social Values in Students:

Heat Wave as Death Tool

Adnan Asghar Ali1,a, Dr. Asif Kamran2,b,*, Fawwad But3,c

1
PhD Scholar: Department of Management Science, IBT Karachi, Pakistan
2
Associate Dean: Faculty of Management Science & Social Science, IBT Karachi, Pakistan
1
PhD Scholar: Department of Management Science, IBT Karachi, Pakistan
a b c
adnan_asghar_ali@hotmail.com, asifkamrankhan@hotmail.com, fawwadbutt@yahoo.com
*Corresponding author

Keywords: Social development, Social Competencies, Integrating academic and social

competency, Citizenship development, Social values of business student

Abstract. In Pakistan, heat-wave occasion begins from month of May and reaches out up to
September. A serious heat wave 49 C (120 F) of temperatures in southern region of Pakistan, that
caused as a death tool of around 2,000 individuals from lack of hydration, generally in Sindh territory
and its capital city, Karachi. As this incident happened then so many welfare organization of Karachi
city like Edhi, Cheepa, Saylani seen active to play their role for helping mankind. Beside these private
welfare organization, Institute of Business and Technology (IBT Karachi) CSR society members also
found as helping hand with all other welfare organization those were working. Where (IBT Karachi)
administration has great concerns towards quality education, it similarly considers healthy
environment for students to grow-up the students personality ethically and socially to compete in real
world confidently. That is why (IBT) provides open doors to their students to join (CSR) Society to do
work for general welfare and help mankind. The aim of this study is to identify the role of (CSR)
Society for developing interpersonal skills, ability to make companions and emotional feelings about
needy people and help out regardless of sex, position, ideology or race. This study also clarifies that
(CSR) Society has a positive impact to develop social values in students.

Introduction
The Institute of Business and Technology (IBT) Karachi was set up in 2001 by the Global
Education Consultants Society (GEC) to advance the higher education for Pakistan's economic
development. IBT did not build up its Main Campus but also City Campus, Gulshan Campus and
Gulshan Executive Campus) in different zones of Karachi during 2006-2008. IBT traveled
significantly quicker amid periods, yet did not trade off at quality affirmation, because of this quality
confirmation component has been positioned at most abnormal amount "6 Star" by Government of
Sindh and put it in "W" category and positioned "9th Best Business School" in Pakistan by HEC in
2014. IBT realizes that understudies life is going to keep occupied in concentrating on as well as take
a stab at making conceivable approaches to make students social that enhance their ethical, social and
moral qualities to working world. That is the reason "Eleven" societies are in IBT (Marketing Society,
Placement society, IEEE society, CSR society, Literary society, Engineering society, Media &
Fashion Society, Studio Society, Cultural Society, Counseling Society and Sport Society), so students
can include in them by their decision. Structure these social orders; one is "IBT CSR Society", which
plan with a target to create social abilities and worth in their students.

360
Literature Review
Social competency would incorporate a man's information, state of mind, and aptitude identified
with no less than six parts: monitoring one's own and others' feelings, overseeing motivations and
acting fittingly, imparting viably, shaping solid and significant connections, cooperating with other
people, and determining clash. Social fitness is a 'formative build'. It concerns the communication
between an individual and others, especially with associates (Englund, 2000)[4]. A key test for
21st-century schools includes serving socially different understudies with fluctuated capacities and
inspirations for learning. It is in the university that the best open door is stood to examine the
developments of the past and to show the truths and standards included before the general population.
The university, as the focal point is believed, to keep up for majority rules system the solidarity so
fundamental for its prosperity. The domain of social understanding and advancement is a basic
segment of depictions of human capacity and conduct (Albrecht, 2006)[1].
Teaching and learning in university has solid social, enthusiastic, and scholarly segments. Students
ordinarily don't learn alone but instead in a joint effort with their instructors, in the organization of
their associates, furthermore, with the consolation of their families. Feelings can encourage or block
students' scholarly engagement, hardworking attitude, responsibility, and extreme school
achievement. The advancement of citizenship among undergrads is a long-standing objective of
advanced education in the United States (Ernest L. Boyer, 1981)[5]. As indicated by Harper's
hypothesis of industrial societies, the educational institutes plays a principle role in societal
subsystem. Its proceeding with improvement and successful incorporation at all levels (initial level to
higher level) is compulsory to deliver remarkable majority rule progress (Harper, 1905)[7]. There is
wide understanding among policy makers, and people in general that educational structure ought to
graduate understudies who are capable in core area of subjects, ready to cooperate with other people
from assorted foundations in socially and sincerely talented ways (Greenberg, 1997) [6].
In origination, at any rate, majority rule government approaches most about the perfect of all social
association; that in which the individual and the general public are natural to one another (Westbrook,
1993)[12]. In a national specimen of 148,189 (6th to 12th) graders, just 29% to 45% of reviewed pupils
reported that they had social capabilities, for example, sympathy, choice making, and struggle
determination abilities, and just 29% demonstrated that their school gave a minding, empowering
environment (Benson, 2006)[2]. Social aptitudes are vital for getting ready youngsters to develop and
succeed in their grown-up parts inside of the family, work environment, and group (Ten Dam, 2007)[10].
With great parental connection would be wise to social aptitudes and, in this manner, better fitness in
creating fellowships and sentimental connections (Engel, 2005)[3]. Each improvement and everything a
youngster learns contributes, in any event in a perfect world, to their working in the public eye and
subsequently include Social advancement and social learning (Wardekker, 2001)[11].

Statement of Purpose
The aim of this study is to recognize the role of Institute of Business and Technology (IBT Karachi)
CSR Society to adding the comfortable feeling to work with individuals, overcoming bashfulness,
educate psychological and offering the under some assistance with privileging people groups. This
study also clarifies the building of social knowledge and interpersonal aptitudes of student to meet
individuals, to make companions.

Objective
To analyze students behavior during communication with others
To analyze students ability to make friend
To analyze students feeling when others are in problem
To analyze the students shyness in interacting with strange person
To identify the significance of (IBT Karachi) CSR Society
361
Research Questions
1. Is (IBT Karachi) CSR Society a playing positive role to build-up social value in students?
2. Overall, which campus students became more social?

Methodology
This is a qualitative research is based on scheduled interview of Higher Education Private Business
Institute (IBT Karachi) campuses chosen as a case because of its (CSR) Society and this makes up the
main mass of our sample. This study approached a random sampling method for information
accumulation, where seventy 71 (CSR) Society members interviewed out of 80.

Case (Heat Wave as Death Tool)

In Pakistan, heat-wave occasion begins from month of May and reaches out up to September.
Occasional investigation of heat index for the whole Pakistan delineates that there is a critical
increment in evident temperature for about most recent couple of decades. There is a significant rising
pattern of both the variables, which is a definitive reason for sharp increment in heat index values in
Pakistan as shown in Fig. 1. The aggregate change in humidity computed amid summer from
1961-2007 for whole Pakistan is 6.2% and downright change in most extreme temperature is 0.25C
(Zahid and Rasul, 2010)[13].

Figure 1. (a) Heat Index Anomalies in Pakistan (b) Max: Temp: & Relative Humidity Anomalies 1961-2007 [8].

Incredible temperatures began to grasp Pakistan's southern ranges on June 18th, 2015, and topped
on end days of June. A serious heat wave 49 C (120 F) of temperatures in southern region of
Pakistan, that caused as a death tool of around 2,000 individuals from lack of hydration, generally in
Sindh territory and its capital city, Karachi. In June 2015 maximum temperature of Karachi was 37 C
(98 F) recorded and it is most elevated temperatures since 1979. As on twentieth June, high
temperatures were recorded in the southern parts of the country. The temperature went from 49 C in
Larkana and Sibi to 45 C in Karachi. In southern Punjab, 40 C was recorded in Multan, while a few
regions of the Balochistan territory were additionally influenced where temperature touched 49 C in
Sibi and Turbat. As indicated by PMD records, this serious heat wave occasion held on for successive
5-days from 19-23 June. The everyday temperature inconsistencies were more than 5C for back to
back five days. The departure of most extreme temperature from the typical went between 5.3 to 11C
amid serious heat wave as is evident from Fig. 3. The most elevated greatest temperature in Karachi
was 44.8 C on 20th June 2015 with a takeoff of 11.1C from ordinary, which was the most
astounding temperature for the month of June after year 2000 (45.5 C). The heat wave was

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uncommon as far as ingenuity. There were occurrences in Karachi when the temperature departures
were +5C or all the more yet it kept going just for 1-2 days.
The late spring evenings in Karachi amid the month of June (15-16) showed an average ordinary
dampness amount and transport into the zone from the Arabian Sea. The air conditions went irregular
after an edge (expansion of high weight territory) was stretched out over Baluchistan and connecting
parts of the country including Karachi. The analysis of the lower climate (15003000m above ocean
level) uncovers that because of a low pressure zone over northeastern parts of India & a shallow low
over southeastern parts of Pakistan, the wind bearing over Karachi stayed northwesterly, which
conveyed dry and changed warm air to Karachi.
The city of Karachi has been developing as far as urbanization and populace development at higher
rates as of late. The urban zone thickness has expanded from 233 km2 in 1947 with a populace size of
0.4 million to 3,566 km2 in 2004 with a populace size of 14 million (Qureshi et al., 2008)[9]. Asif
Shuja, the former director general of the Pakistan Environmental Protection Agency, said that the
absence of modern climate forecast technology in Pakistan added to the losses of life due to heat
wave[11]. Additionally, far reaching disappointments of the electrical network left numerous areas
without working aeration and cooling systems, fans, or water pumps, increase numbers of death [12].

Discussion
IBT Main Campus: IBT Main campus is situated in Korangi Industrial Area, which offers different
programs at undergraduate to PhD level studies. All resources of this campus about academia,
co-curriculum activities and extra-curriculum activities are accessible to their students. There are
twelve different societies working in IBT, and all these societies are organized by President,
Vice-President, Director and Co-Director. With comparison to these societies orders; one is "IBT
CSR Society". To distinguishing the part of CSR society towards creating social values in students
including those; who have socially worked with this society in June 2015 during heat wave season in
Jinnah Hospital Karachi. The societys available 37 members out of 42 or (88.09%) were deeply
interviewed about their activities and work task to answer the research question. The Main Campus
students are observed as good and decent in attitude during correspondence, observed frankness and
politeness for companionship also observed not to feel reserved to meet strange person and chat in
group and found strong feelings about people who are in problem.
IBT City Campus: The city campus namely Executive Development Center is situated in the heart
of city at PECHS, Shahrah-e-Faisal, Nursery Road. The main objective to open this campus was to
facilitate the population of around the city to provide the quality education at door step also targeting
professional executive persons to continue higher studies at weekend. EDC campus students are
highly participating in all activities offered by CSR society and it is headed by society Director. To
recognizing the work of CSR society making social qualities in students, where 21 members out of 23
or (91.30%) interviewed, who has socially worked with this society in June 2015 during heat wave
season in Civil Hospital Karachi. The interview was designed in such a manner that helped to
understand students activities explore the answer of research question. This campus students were
found good in attitude during communication, observed frankness and politeness for companionship
also observed not to feel shyness to interact strange person and found solid emotions about people
who are in trouble.
IBT Gulshan-e-Iqbal Campus: This campus was established in 2008 is located in Gulshan-e-Iqbal,
Block-2 Karachi. Primary objective to set up ground in north eastern part of Karachi, to provide
quality education and strengthen their roots in this educational zone. The available 13 members out 15
or (86.66%) were interviewed to answer the research question those who worked in Abbasi Shaheed
Hospital during heat wave season. This campus students were observed great and fair in state of mind
during communications, observed frankness and respect for fellowship similarly, watched not to feel
hesitate to interact with stranger and chat in gathering but one thing was found in Gulshan-e-Iqbal

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students that they were found neutral about people who are in problem, because of experiencing a
couple of fake and routine people that have not any honest and true inspiration to help them.
IBT Gulshan-Executive Campus: This campus is built in Gulshan-e-Iqbal, Block-5 in 2014 nearby
highly dense and diverse educational zone where other several higher education institutes are
working. It was found that, Gulshan-Executive Campus has no existence of CSR Society and not its
associate members.

Conclusion & Recommendation

Social Welfare is the procedure of Social Development through the potential of the people to
endorse effective participation in the process of social change and improvement of quality of life. The
idea of Social Welfare is drawn from the fundamental principles of Islam based on Haqooq-ul-Ibad,
making the state and society together in charge of the welfare of the people. This study demonstrates
the case of IBT campuses in which students join CSR Society and deeply involved in several social
events. This study shows that CSR Society is playing a positive and significant role towards
developing social value in students. It is also recognized that both Main campus and EDC campus
students are socially very strong as compared to Gulshan-e-Iqbal campus students. Finally, this case
study recommends two things for CSR Society President, i.e. it is needed to start CSR work in
Gulshan-Executive campus as soon as possible and arrange workshops and seminars on emotional
intelligence for their students.

References
[1] Albrecht, K. (2006). Social Intelligence: The New Science of Success. San Francisco:
Jossey-Bass.
[2] Benson, P. (2006). All kids are our Kids: What communities must do to raise caring and
responsible children and adolescent. San Francisco.
[3] Engel, R. F. (2005). Parental Attachment and Adolescents' Emotional Adjument: The
associations with social skills and relation competence. Journal of Counseling Psychology, 428-439.
[4] Englund, M. L. (2000). Adolescent Social Competence: Effectiveness in Group Setting, Child
Development. 1049-1060.
[5] Ernest L. Boyer, F. M. (1981). Higher Learning in the Nations Service. Carnegie Foundation for
the Advancement of Teaching.
[6] Greenberg, M. H. (1997). Promoting Social and Emotional Learning.
[7] Harper, W. (1905). The university and democracy. In The Trend in Higher Education. Chicago:
University of Chicago Press.
[8] "Heat wave: Under scorching sun, Pakistan swelters". The Express Tribune. 21 June 2015.
Archived from the original on 22 June 2015. Retrieved 22 June 2015.
[9] Qureshi, I. A., H. Lu., S. Ye. 2008. Urban Transportation and Equity: A Case Study of Beijing
and Karachi. Trans Res. Part A 42. Pp. 125139.
[10] Ten Dam, G. &. (2007). Educating for Adulthood or for Citizenship: Social Competence as an
educational goal. European Journal of Education, 281-298.
[11] Wardekker, W. (2001). Schools and Moral Education Conformism or Autonomy. Journal of
Philosophy of Education, 101-114.
[12] Westbrook, R. B. (1993). John Dewey and American Democracy. United States of America:
Cornell University Press.
[13] Zahid, M. and G. Rasul. 2010. Rise in Summer Heat Index over Pakistan. Pakistan Journal of
Meteorology. 6(12).
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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

A Study on the Collaborative Mechanism Based on Cost Control Theory

in Coastal Harbor Logistics

You-Ming ZHU
Zhejiang Business College, Hangzhou, Zhejiang China 310053
zym0573@163.com

Keywords: Cost Control; Collaborative; Logistics

Abstract. Under the increasingly stable state of both the transaction scale of foreign trade business
and the throughput, the collaborative development among the coastal harbor and regional economy
has been become the crucial way for competence improvement. This paper showed through empirical
study that the harbor logistics shall have the positive correlation with the development of regional
economy, thus based on the perspective of cost control study, this paper objectively analyzed the
practical problems existed among the logistics operation of coastal harbor in China, established the
logistics collaborative operation mode in strategical, business, information and fund interface, and
proposed the policy suggestion to reduce the logistic cost from the two dimensions of the local
government and coastal harbor, so as to benefit the development of regional economy.

Introduction
The harbor throughput of China has occupied the important share around the world, bearing the
custom clearance and distribution work for plenty of domestic trade transportation, foreign trade
goods delivery and the bulk stocks such as petrochemicals and iron ores, this closely connected with
the development of national economy. Although the harbor throughput of China has got great
development, but in comparison with the harbor in European countries and the US, there still existed
a great gap in both the management level and service capability accordingly. Especially the logistic
supply capacity of the harbor was fallen behind the harbor growth, and didnt meet the demand of the
rapid growth of harbor in China. Based on above factors, this paper analyzed the relations between
coastal harbor and regional economy as well as the main problems facing harbor logistics cost control,
explored the construction of the harbor logistics collaborative operation mechanism, and then
proposed the opinion and suggestion for optimization of harbor logistic operation accordingly

The Analysis on the Relationship Between Coastal Harbor Logistics and the Development of
Regional Economy.

The Index Selection and Data Origin

The coastal harbor logistics refers to the supply chain service to accomplish the whole goods sales
process such as goods transportation, storage, distribution, processing and re-packaging, packaging,
custom clearance, commodity inspection, insurance and information exchange etc by taking the
harbor transportation and transition as the main functions.[1] However, for the statistical materials
related to harbor logistics, till now there still not formed the systematical and unified system
domestically. Therefore, to select the index that could represent the harbor logistics development
status shall be very important. From the harbor function, to select the cargo throughput of port (PCN)
as the representative index for harbor logistics can fully reflect the position that the harbor have had
among the national economy and social development, and it can also reflect the harbor scale and its
production capability even well. As per the regional economy development index, to select the gross
domestic product (GDP) as the representative shall have the matching authority and it can also get the
wide recognition then. Based on above opinions, by taking the two time series in the gross domestic
product of Zhejiang Province from 1994 to 2014 (GDP, in RMB 100 million) and the cargo
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throughput of port (PCN, 10 thousand tons) as the sample, this paper made the empirical analysis on
the relationship between the harbor logistics in Zhejiang and the development of regional economy of
Zhejiang, by eliminating the price factor of both above series, to convert these into the constant price.
In order to reduce the heteroscedasticity, the PCN and GDP were also treated through the natural
logarithmic transformation and remarked them as LNPCN and LNGDP respectively; after the
transformation the co-integration relationship of the original time series was not influenced at all, by
using the double variant trend variation diagram drawn Eviews, it was shown that both the two factors
has the similar trend of growth and change, this implied that there may be the co-integration
relationship between the two factors.
Econometric Method
The main econometric method in this paper is the vector auto-regression model (VAR). The VAR
model is such a model established on the basis of statistical property of the data, by taking each
endogenous variable in the system as the function for the lagged values of all the endogenous
variables in the system it structured the model, so as to expand the single variant auto-regression
model to the vector auto-regression model consisted by the variables of multivariate time series. The
VAR(P) model shall have the general mathematical expression as:

Yt=Atyt-1 + Apyt-p +BXt+ tt=1, 2, , T (1)

There, the matrix A1 in 1kk dimension , , Ap and the matrix B in kd dimension are the
coefficient matrix need to be estimated. 1 is the disturbance variable in k dimension, they shall have
the simultaneous correlation with each other, but have not the correlation with its own lagged value,
also have the correlation with the variables on the right side of the inequality.
Based on the VAR model analysis, this paper did analyze the relationship between the harbor
logistics and regional economic development by using the Granger causality test and co-integration
analysis method. Firstly the unit root test was used on the cargo throughput of port and gross domestic
product, then the Granger causality test was used for determining the relationship of above two
factors, finally the discussion on whether theres short term or long-term equilibrium relationship
existed between the two factors was made accordingly. The regression and test process were all
performed by the econometric software Eviews 5.0.
Establishment of VAR Model and co-Integration Relationship Test
To use the Eviews software for estimation of the VAR Model, through experiment the VAR model
got the optimal value while the lagged order number is 3. The VAR model is given as below:
LNPCN=1.461LNGDPt-1-2.103LNGDPt-2+0.852LNGDPt-3+1.068LNPCNt-1-0.215LNPCNt-2+0.
014 LNPCNt-3-0.185 (2)
While R2=0.9962, adjusting R2=O.9948, S.E.=O.0595, F=668.6880, it showed that the model
shall have the satisfactory statistical results. All the reciprocal of the estimated root model in the VAR
model is less than 1, it implied that the estimated VAR model shall be stable.
From the co-integration equation it can be seen that, during 1994 to 2014 there is the long-term
stable relationship existed between the cargo throughput of port in Zhejiang and the gross domestic
product. The coefficient in the model is positive, implying that the economic development shall have
the positive correlation with the cargo throughput of the port.

The Analysis on the Problems Existed in Coastal Harbor Logistic Operation

The Individual Operation of the Coastal Harbors Lacks of Competitive Advantage

The traditional coastal harbors are basically large major state-owned enterprises, and most of them
are governed in different province separately without the subordinate relation, and their operation is

366
also separately performed, with lower integration level of the resource, which in turn resulted in the
even higher logistic cost and the cannibalization effect to the enterprises. Against the background
such as economic globalization, trend of larger-sized vessel, federalization of corporate management,
the increasingly fierce competition in the world shipping market, the complete recovery of
export-oriented economy and the successful transformation and upgrade of regional economy shall
still need more time, these will bring more severe challenges to the harbor enterprises accordingly.
How to improve their own competence through reducing logistic cost under such situation has already
become the hard issue that Chinese harbor enterprises need to solve urgently.
The Traditional Logistic Operation Mode Led to the Lower Efficiency
In the logistic operation links such as discharge, transportation and storage etc, the coastal harbor
enterprises have realized the modernization of the hardware equipment with the higher degree of
mechanization. But on the software especially the construction of informatization, they have had still
the deficiencies accordingly. Although many harbor enterprises has established the logistic
information platform, there are few modules to realize the real-time operation. The harbor enterprises
were still not incorporated in the supply chain, and they did also not form the shard information and
real-time interaction with the enterprises upstream and downstream, thus cannot respond to market
demand quickly. The harbor enterprises still need the continuous reform and exploration for
improving the configuration capability on both international shipping and financial resources,
optimizing the port structure and management structure of the harbor, cultivating the new point of
economic growth and the growth pole of goods source.
The Cost Strategy Has Yet to be Fully Established in the Harbor Enterprises
Due to the double restraints of the nationalization and administrative subordinate, although some
harbor enterprises has got the certain economic benefits based on the policy bonus and the periodical
characteristic of regional economic development, but the egalitarian practice still existed, and they
have not felt the pressure of market competition. The management means on the logistic cost of many
harbor enterprises are also depending on the main body of mission type based on administrative
command, throughout all the beginnings and ends of corporate logistic cost control procedure, their
grassroots employees did not have the cost consciousness and are lack of the enthusiasm on cost
control. The enterprises have got used to paying attention to visible costs such as discharge fees,
materials fees and energy consumption charges etc, and they paid little attention to the invisible costs
such as the capacity utilization rate, etc. The enterprises did not have the sustainable control means on
the logistic cost, and the cost monitoring links still call for improvement.

The Establishment of the Collaborative Operation Mechanism in Coastal Harbor Logistic

Enterprises.
Based on the research of domestic scholars, through expert interview, by field research on Ningbo
Port Company Limited, Zhoushan Port Company Limited, this paper proposed that the collaborative
operation of coastal harbor logistic enterprise can be divided into four interfaces: the collaboration
through the strategical interface, business interface, information interface and fund interface.
The Collaboration through Strategical Interface
Through establishing the strategic alliance with the cooperative enterprises upstream and
downstream, the harbor enterprises shall set up the confidence mechanism, to integrate the dispersed
resources organically through the working mechanism of sharing benefits and bearing risks mutually,
while reducing the logistic cost to realize the collaborative effect as 1+1>2. [2]Through the system
design and treaty rules of the alliance, it shall fully implement the cost controlling thought of the
whole process, all staff participation idea, the concept of competition and saving into each
cooperative entity and operation link among the alliance, enable each cooperative entity having the

367
complementary advantages, unified action and mutual target. The collaboration through strategical
interface can be divided in different hierarchies, the compact strategical alliance based on equity
relation shall be constructed among the core enterprises, the network strategical alliance based on
benefit chain and the contractual relationship shall be constructed among the key enterprises and the
loosen strategical alliance based on the value identity shall be constructed among the affiliated
enterprises.
The Collaboration through Business Interface
To optimize the operation process, expand service range, construct the logistic business chain and
service chain that integrated the loading and discharging, transportation, storage, processing,
dispatching, distribution, payment collection etc together. To precisely judge the internal and external
environment of the enterprise and the resource advantages, through implementation of river-ocean
combined transportation, railway-water combined transportation, port-railway combined
transportation methods to realize the integration and optimization of logistic resources, reduce
logistic cost. To carry out the standardization project of operation, to plan the operation standard of
the strategical partner in unification, formulate the logistic collaborative operation manual, regularly
organize the staff training for the partner, realize the standardization of executive instruction, business
process, operating tools, promote the seamless joint between the operating tools of cooperative
enterprises (such as the vehicle specifications for container loading, specs of discharging tools, the
dimensions of automation feeder platform, etc), to improve the use efficiency and benefits of the
operating tools.
The Collaboration through Information Interface
Base on the big data concept, through perfecting the collaborative logistic information system, to
conduct the reasonable order optimization, through the one-stop service to find out the optimal
transportation route and optimal distribution scheme, to offer the solution with lower cost to the
largest extent, realize the optimized configuration of the distribution method, so as to reduce logistic
cost and improve the distribution effectiveness radically. Based on the demand for reducing logistic
operation cost, the communication mechanism of regular executive meeting, information exchange
and communication, scientific innovation exchange shall be established between harbor enterprise
and partner, so as to realize the information symmetry and resources sharing among the partners,
increase the transparency of logistic collaborative operation, improve the confidence among the
partners.
The Collaboration through Fund Interface
Through the communication and cooperation with relative financial institutions and intermediary
institutions, the harbor enterprise shall innovate the fund payment method among logistic operation
link, expand the applicable range of electric payment, improve the frequency and efficiency of fund
circulation, so as to accelerate the progress of logistic collaborative operation among the partners
then. In addition, through collaboration via fund interface, the harbor enterprises may expand their
financing channel, to provide the derived value-adding service through investment on port shipping
enterprise and the third party logistic enterprise, expand the logistic business scope and reduce logistic
operation cost.
To summarize above analysis, this paper proposed the conceptual model for the collaborative
operation mechanism in the coastal harbor logistic enterprise, as per shown in figure 1.

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Figure 1. The conceptual model for the collaborative operation mechanism in of coastal harbor logistic.

Conclusion and Policy Suggestion

Chinese coastal harbors need to transform from the traditional loading and discharging port into
the modern logistic-trade port. [3] The transformation and upgrade and the sustainable
development of the enterprises shall inevitably require the reconstruction of logistic service system,
by focusing on the reduction of logistic cost, carrying out the overall reconstruction of logistic
technology, logistic method and logistic ideas to establish the new operation mode and operating
system accordingly. Both the local government and coastal harbor enterprises shall actively make the
innovation on the aspects of concept, operating policies and operation modes etc, to adapt to
environmental changes, by performing the collaborative operation through the interface of strategy,
business, information and fund etc, for this reason to effectively integrate the resources, optimize
operational mechanism, promote all kinds of transportation methods and the effective connection and
configuration among various transport capacities, so as to improve the operational effectiveness and
efficiency of the enterprises.
On the government level: 1. To further reinforce the governmental policy support. The government
authorities shall pay high attention to the issue of coastal harbor logistic cost saving, for the industrial
development concerned to national interest and peoples livelihood are all related to the harbor
enterprises closely. The local governmental authorities shall encourage and support the excellent and
powerful enterprises by giving administrative commands or system design according to the demand
of regional industry development, support the construction of the coastal harbor especially in the
hub-like harbor, to make the aspects such as taxation policy, approval procedure, business
qualification etc biased to the key port and its affiliated enterprises related to logistic business, to
break through the obstruction of the collaborative operation among the coastal harbor and transport
enterprises, support both the two parties to move in same direction and develop mutually, further
reduce the logistic cost of the cooperative parties and improve the competence of harbor enterprise. 2.
To establish the regional logistic strategical collaboration mechanism. First to plan and design the
strategical layout of the port logistic, by surrounding the new point for economic growth, new engine
for industrial increase, new industrial agglomeration, new metropolis circle and new trade pattern of
the state during the thirteenth five-years plan period, to construct the new model and running
mechanism for the harbor logistic operation that meet the demand - such as by surrounding the need
of national One-belt-one-road strategy and the strategical emerging industries the country focused on
the development, to accelerate the construction of intersection between the Silk road economic belt
and silk road on the sea, to set up the comprehensive pilot zone of ocean-railway combined
transportation etc, to integrate the links of logistic transportation, storage and distribution etc as the
one package service, to develop the transportation routes in new type and carry out the railway
express business of international LCL container from the harbor enterprise to the middle/ west Asia
and the Europe. The second is that, under the unified guidance of national macro policy, based on the
concept of win-win cooperation and mutual survival and development, the local government in
adjacent region shall completely set up the strategical partnership and improve the competence of the
enterprise. For example the Shanghai and Ningbo regions are both located in the economic circle of

369
the Yangtze River Delta, the Ningbo Port shall combine with the Zhoushan Port to make collaborative
operation with Shanghai Port, to perform the function positioning at the base of deep water port and
international shipping center by surrounding the development strategy of Shanghai Port. Through
cooperation with Shanghai Port to promote the quality of their business development and expand their
service range, also improve the global allocation ability and operation efficiency on international
shipping and financial resources, cultivate the new growth point of economy and growth pole of cargo
source. 3. To perfect the infrastructure of the backbone railway network, branch line network and
container yard network among the harbor enterprise and each main node city inside the economic
circle region, to lay a solid foundation for the smooth promotion of the river-ocean combined
transportation, port-railway combined transportation and railway-water combined transportation. For
example, to accelerate the promotion for the land transport network construction among the Ningbo
Port, Zhoushan Port and Shanghai Port, the construction for the project of inland canal dredging
within the ring of Hangzhou Bay metropolitan area, the construction for the railway-water transport
transition network of inland cities, etc.
On the port level: 1. to fully promote the port scientific innovation strategy. The port logistic
operation efficiency and effectiveness should be improved through the scientific and technological
innovation. On one hand, through developing the logistic information service platform based on big
data, to update the demand-supply status of logistic enterprise in time, accurately position the demand
rule of logistic enterprise, and also provide the needed market and decision-making information for
the user. Through construction of informatization to drive the refined port logistic operation, so that to
integrate and utilize corporate resources effectively, to improve the comprehensive capacity for
all-weather access, fast loading and discharging, custom clearance, container decentralization, storage
and distribution etc, enhance operation effectiveness and efficiency. On the other hand, through
technical transformation to accelerate the promotion of harbor enterprises logistic operation
mechanical tools upgrading and improve the logistic operation efficiency. 2. To practically optimize
the cultivation environment of logistic talent. The key point to promote the scientific and
technological innovation is the talent, to enhance the quality of practitioner in harbor logistics shall be
the foundation to provide the quality logistic service. The first one is that through the establishment of
teach-help-drive mechanism. To organize and held the business training course, theme saloon etc, so
as to improve the business capability of the practitioner in logistics, create a batch of technical
experts. The second is to select the young staff with excellent business ability and quite good political
quality from the enterprise for further education in college logistics specialty, to improve the
theoretical level and R & D ability of the technicians. The third is to actively design some logistic
operation items and arrange some young technical talents as the person in charge, to provide the
logistic talent with the exercise chance and the stage for showing their capability. 3. To continuously
strengthen the cost strategical consciousness, the harbor enterprise should incorporate the cost
strategy into corporate management strategical system, actively build up the consciousness of cost
saving with enthusiasm, through the methods such as the system design, organizing large activity,
innovating managerial mechanism etc to cultivate the cultural circumstance with cost saving, to put
the cost strategy throughout each operational link of the enterprise, the enterprise shall pay attention to
the demonstration effect of the leadership, motivate the grass-root employees sense of ownership,
enable it becoming the habitual behavior of the staff in each hierarchy, so that naturally reduce the
corporate logistic cost.

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References
[1] Martin Christopher. Logistics and Supply Chain Management-Strategies for Reducing Costs and
Improving Services, Prentice Hall, Upper Saddle River, New Jersey, 1998.
[2] E.A. Silver, D.F. Pyke, R. Petersen, Inventory Management and Production Planning and
Scheduling, John Wiley & Sons, New York, 1998.
[3] Ling Chen. The study on regional finance and logistic collaborative development mechanism -
the overall perspective analysis based on SVAR model. Economic issues. 1 (2014)17-20.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Taiwan C to C Analysis: A Study on Chinese Website Phenomenon

Szu-Yuan SUN1,a, Shu-Chen CHANG1,b,*,

Li-Shan CHEN1,c, Gow-Ming DONG2,d
1
College of Management, National Kaohsiung First University of Science and Technology, Taiwan
2
Department of Information Management, Shu-Te University, Taiwan
a b c
sunnyy@nkfust.edu.tw, u0128904@nkfust.edu.tw, u0028905@nkfust.edu.tw,
d
eric6534@stu.edu.tw
*Corresponding author

Keywords: MOA, Diffusion of Innovations, Abilities, Attitudes, Purchase Intention

Abstract. The purpose of this paper is to debate on community engagement and participation in local
community festivals and events by empirically analyzing the factors which either inhibit or facilitate
engagement. The application of the motivation-opportunity-ability (MOA) model to the analysis of
community festivals is an important contribution. In this study, we focused on Taobao debuted the
Double 11 (Bachelor's Day) activity, which has become national fever for Chinese consumers and the
sales volume is more than e-commerce services in Taiwan. Based on what mentioned above, the
purpose of this study is to connect the C to C fever caused by Third Party Payment, diffusion of
innovations theory, MOA and the theory of reasoned action.

Introduction
Currently, C to C e-commerce in Taiwan is flourishing because there are perfect e-commerce
platforms and mobile devices, multi-screen tools quickly meeting the requirement of the service
quality. The transactions between buyers and sellers in C to C e-commerce are based on the views of
sales interaction of small-volume, large-variety production, so as to provide customized goods and
services and better satisfy the various needs of individuals. The operating pattern of C to C
e-commerce is very multivariate, such as low-cost small amount of goods, single specific clubs,
kayaking, and mountain climbing guide and so on. Benkler [1] believes that C to C has been likely
become the mainstream economy in commercial market, and enterprises may carry out assessments
and adopt it as a sales channel.
Literature Review
E-commerce. Elements of e-commerce include business flow, logistics, cash flow, information
flow. The features of business models have become increasingly multivariate. In general, there are
two parts of customers perceive, including the opportunity cost and the interests (e.g. costs, or service)
that can be obtained. The C to C business pattern can sufficiently meet the needs of consumers
searching for goods and diminishing their doubts about goods. So, Adamson et al., believe that more
than 60% of business-to-business transactions and information systems play a key role in the
communication between the business operators and suppliers[2].
Innovation Diffusion Theory (IDT). Innovation Diffusion Theory" first appeared in 1903, and
then Rogers [3] proposed a model, further dividing diffusion into diffusion of products or services,
and diffusion of adopters. Regarding the diffusion of products, it is believed that if a new product has
the following five elements.
To achieve innovation diffusion, the new product should have the following features:
1. The new product has compatibility.

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 Advantage over the general product in terms of functions or services connected with the Third
Party Payment.
2. The new product itself can reduce customers' switching costs which is highly compatible with
related products.
3. Functional complexity should not be too high.
4. Products can be used on trial.
5. Products can be evaluated and observed.
Theory of Reasoned Action (TRA). The theory of reasoned action (TRA) developed by Fishbein
& Ajzen [4] indicated that an individual's decision to engage in a particular behavior based on the
outcomes of the individual expects, which will come as a result of performing the behavior. The
application of TRA is quite wide, and has been more often used in marketing research and the social
sciences, in particularly related to the prediction of behavior [5], for example, Usep Suhud & Nurdin
Hidayat used TAM to explore service effectiveness of mobile payments [6].
Self Congruity. Based on the development of C to C e-commerce, that consumers have been more
willing to express their thoughts as they have had more education. Self congruity is highly consistent
with the selected products in terms of brands or products. The more a product or brand is in line with
the self-image a consumer wants to express, the more it will be favored. For consumers, when buying
a product they not only care about its functions, but also their self-images [7]. Therefore, their study
suggested that there are four kinds of self congruity, actual self congruity, social self congruity, ideal
self congruity, and ideal social self congruity. So, when consumers buy goods or services, they
actually exhibit the final result of self congruity.
Motivation, Opportunity, Ability (MOA) Theory. Motivation, Opportunity, Ability (MOA)
theory consists of three factors, including motivation, opportunity, and ability. They believe that
spreading messages is a kind of exchange of information. After receiving a message, the recipient is
very likely to transform himself into a medium to spread the message. MOA theory has been widely
used in the area of marketing.
Know-How Exchange. Consumer motivation often comes from the transfer of knowledge
exchange. Due to the prevalence of the Internet, customer to customer know-how exchanges channels
and tools, which have increased dramatically. Consumers exchange know-how and information on
various social websites. This can be regarded as the exchange between the motivation of intangible
personal and social values and tangible equivalent object [8]. Therefore, C to C e-commerce operators
can make good use of the functions of know-how exchange to meet the requirement of services.

Research Design
This study is based on the theoretical literature, to design a quantization questionnaire, test whether
product characteristics of C to C market meet the requirement of consumers' attitudes, and further
verify the motivation involved in consumer goods using the hypothesis of know-how exchange. The
study then set up the measurement model, as appearing in fig. 1

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 Figure 1. The Structural Model.

Hypotheses
The quick expansion of C to C is mainly due to the change of market demand. The issues defined by
comparative advantage are diversified, but most of them are related to the innovative usefulness
perceived by consumers [9]. The core concept included some degree of substitution of innovation,
such as convenience, social prestige or individual interests, all of which are in the category of
comparative advantage.
Because every individual consumer has increasingly paid attention to their own demand, C to C
operators should try to create the tangible and intangible comparative advantages of products. The
view of is used as the operational definition of the questionnaire and the following hypothesis is
proposed:
H1: The comparative advantages of product characteristics will positively affect consumers' self
congruity and ideal attitudes.
In the consumption context of e-commerce, the more dynamic ability a consumer has higher degree
of satisfaction he/she obtains. Schepker et. al., [10] found that learning from the mutual relationship,
know-how acquisition and stable sense of trust can increase dynamic abilities through a large scale of
research. For the explicit part, the relationship between different abilities is like symbiosis,
dominating and processing the integration of the various external activities and messages [11]. In the
C to C, establishing a communication platform for buyers is helpful for benign interaction. The view
of Salunke et al., is used as the operational definition of the questionnaire, and the following
hypothesis is proposed:
H2a-c: Individual consumers' abilities to detect, absorb, and integrate the information of goods will
positively affect their know-how knowledge exchange ability.
Many researches on self congruity found that consumers' propensity to buy will drive them to
approach to the products that reflect their self-images. Recently, congruity has been often used to
explain the retail, consumer psychology, advertising and brand evaluation [12]. To determine the
relationship between self congruity and brand evaluation moderators, psychologists and marketing
researchers presented a theoretical model. Sirgy et al., [13] used it as an operational definition, to put
forward the following hypotheses:
H3a: Self-expectations and ideal self congruity will affect consumer motivation.
H3b: Self-expectations and ideal self congruity will affect consumers' opportunity identification.
H3c: Self-expectations and ideal self congruity will affect consumers' handling abilities.
H4: Self-expectations and ideal self congruity will affect purchase intentions.

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 Siemsen et al., [15] believed that the opportunity given in the environment can be seen as a
situation, which initiate action, the driving force implying opportunity and handling ability. As to
opportunity, it could be explained from any positive perspective or tangible or intangible angle. The
tangible part includes convenience, environment and prices; the intangible part includes value,
identity, satisfaction, and demand satisfaction.
Abilities refer to individual's abilities to handle money, knowledge, interpersonal relationship and
so on. Researchers found that the more capable an individual is, the more information he/she is able to
handle and the wider medias he/she can interact with and contact. The view of Siemsen et al., is used
as the operational definition of the questionnaire, and the following hypothesis is proposed:
H5a-c: Individual's (a) motivation, (b) opportunity, and (c) ability will positively affect the value of
know-how exchange.
In Taiwan, if the business operators want to boost sales and come out on top in the competitive
market, they should take the lead to actively provide a large amount of product information and
enhance the service quality to satisfy their customers, such as product consulting, for avoiding
information asymmetry. The view of Cohen is used as the operational definition of the questionnaire
[16], and the related hypothesis is proposed as follows:
H6: C to C exchange platform and functions will positively affect the purchase intentions.
That the majority of companies with higher ability to aggregate know-how are usually more able to
build knowledge network and transfer propagation, which means that the companies of the specialties
are more able to make good use of the Internet to collect information and disseminating know-how. In
this study, the view of Chen, Hsiao, & Chu (2014) is use as the operational definition, and the related
hypotheses are proposed as follows:
H7: Know-how transfer competency will positively affect product innovation.
H7a: Product innovation will positively affect individual consumers' abilities.

Data Analysis and Tools

The standard proposed by Churchill; Dillman[18,19] will be followed, to prove the hypotheses
according to 5-point Likert scale, in which 1 refers to strong disagreement and 5 refers to strong
disagreement.

Expected Results and Recommendations

The development of e-commerce in Taiwan was started earlier than in Mainland China. However,
the consumption scale in Taiwan was less than that in Mainland China in recent couple of years. The
findings of this indicate that there are two reasons for that. First, Taiwan's overall economy has been
more sluggish. And secondly, C to C e-commerce has long been developed in Taiwan, so it has been
difficult for the old C to C model to satisfy consumers in terms of consumers' education levels and
habits. This study suggests that the e-commerce operators should optimize product data on interactive
platform and interface, which takes measures to provide higher security protection for personal data
and offers products of the features that can highlight or add personal value or cheap products with
simple basic functions, to boost the transaction scale of C to C e-commerce in Taiwan.

References
[1] Y. Benkler, Sharing nicely: on shareable goods and the emergence of sharing as a modality of
economic production, Yale Law J. 114 (2004) 273358.
[2] B. Adamson, M. Dixon, N. Toman, The end of solution sales, Harvard Business Review. (2012)
pp.60-68.
[3] E.M. Rogers, Diffusion of innovations, The Free Press, New York, 1995.

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[4] I. Ajzen, M. Fishbein, Beliefs Attitude, Intentions and Behavior: An introduction to theory and
Research, Addition- Wesley, Boston, MA, 1975.
[5] T. David, The sufficiency assumption of the reasoned approach to action, Social Psychology.
(2015) 1-11.
[6] S. Usep, H. Nurdin, A mixed-methods to explore stage of readiness and intention of micro and
small enterprises to adopt mobile money in Indonesia, International Journal of Business, Economics
and Management. 2:1 (2015) 15-33.
[7] M.J. Sirgy, D. Grewal, T. Mangelburg, Retail environment, self-congruity and retail patronage:
an integrative model and a research agenda, Journal of Business Research. 49 (2000) 127-138.
[8] E. A, Skinner, Secondary control critiqued: Is it secondary? Is it control? Comment on Morling
and Evered, Psychological.Bulletin. 133 (2007) 911-916.
[9] F.D, Davis, Perceived usefulness, ease of use and user acceptance of information technology,
Management Information Systems Quarterly. 13:3 (1989) 318-340.
[10] D.J, Schepker, W.Y, Oh, A. Martynov, L. Poppo, The many futures of contracts: moving beyond
structure and safeguarding to coordination and adaptation. J Manage Gov.40:1 (2014) 193-225.
[11] S. Salunke, J. Weerawardena, J.R, McColl-Kennedy, Towards a model of dynamic capabilities in
innovation-based competitive strategy: Insights from project oriented service firms. Industrial
Marketing Management. 40:8 (2011) 12511263.
[12] P. Boksberger, S. Donicar, C. Laesser, M. Randle, Self-congruity theory: To what extent, does it
hold in tourism? Journal of Travel Research. 50 (2014) 454464.
[13] A. Aguirre-Rodriguez, M. Bosnjak, M.J. Sirgy, Moderators of the self-congruity effect on
consumer decision-making: A meta analysis. Journal of Business Research. 65(2012) 11791188.
[14] E. Siemsen, A.V. Roth, S. Balasubramanian, How motivation, opportunity, and ability drive
knowledge sharing: the constraining-factor model. J Oper Manag. 6:3 (2008) 426-445.
[15] A. Cohen, Antecedents of organizational commitment across occupational groups: A
meta-analysis. Journal of Organizational Behavior.13:6 (1992) 539559.
[16] C.J. Chen, Y. C. Hsiao, M. A. Chu, Transfer mechanisms and knowledge transfer: the
cooperative competency perspective. Journal of Business Research. 67:12(2014) 25312541.
[17] G.A. Churchill, A paradigm for developing better measures of marketing constructs. Journal of
Marketing Research. 16 (1979) 64-73.
[18] D.A. Dillman, Mail and Internet surveys: the tailored design method 2, update with new Internet,
visual, and mixed-mode guide. 2nd ed. New York: John Wiley & Sons (2007).

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Implementation of an SDN-based Security Defense

Mechanism Against DDoS Attacks
Hsiao-Chung LIN1,a, Ping WANG1,b,*
1
No.195, Kunda Rd., YongKang Dist., Tainan City 710-03, Taiwan
a
fordlin@mail.ksu.edu.tw, bpingwang@mail.ksu.edu.tw
*Corresponding author

Keywords: Software-defined Networking, DDoS attack, NIDS, OpenFlow.

Abstract. Although mobile devices and IoT devices with an SDN (Software Defined Networking)
architecture for cloud appliances have improved the convenience of our daily lives, they also pose a
threat to network attacks, including DDoS (distributed denial-of-service) attacks. Consequently,
these attacks make their service unavailable to its intended users and cause the improper disclosure
or sharing of information. Accordingly, this paper implements an SDN-based information security
defense mechanism (ISDM) incorporating three OpenFlow management tools with sFlow standard
for network intrusion detection system (NIDS), to perform anomaly detection, mitigation and
reduce the loss caused by the DDoS attack. The experimental results proved that the SDN controller
enables a defender to response to discover the security threats and develop mitigation strategies for
DDoS attacks by using behavioural analysis with logs collecting from Openflow switches.

Introduction
To enhance network security management, Sun Microsystems proposed Software Defined
Networking (SDN) concept associated with its architecture in 1995. SDN architectures decouple
network control and data forwarding functions, enabling network control to be directly
programmable and the underlying infrastructure to be abstracted from applications with an
OpenFlow protocol. SDN is a dynamic, manageable, cost-effective, and adaptable architecture
suitable for the high-bandwidth, dynamic nature of today's applications. [1]
In smart living appliances, Internet of Things (IoT) devices are connected through a home
network to enable control by using a centralised network controller associated with remote network
devices from the Internet. When integrated by wireless sensing and information communication
technologies for IoT devices, home systems and appliances are advantageous because they can
communicate in a collective manner that provides living convenience, health promotion, and safety
benefits. In practice, networking manufacturers generally collect personal information and private
habits without warning. Because personal information in smart living services cannot be disclosed
without legal permission, using private information, including personal IDs, locations, biometrics,
and secret data, requires ensuring its security.
In practice, devices in smart homes provide network-layer security and privacy control
mechanisms to ensure the privacy and information security of family members by monitoring
network activity and detecting suspicious network behaviour. Recently, researchers focus on using
SDN as a network-wide control mechanism for resolving high-risk security concerns, including
distributed denial of service (DDoS) detection and mitigation [2-3], worm propagation [4], and
botnet protection [5].
A denial-of-service (DoS) attack is characterized by an explicit attempt by attackers to prevent
legitimate users of a service from using that service. Compared to DoS attack, DDoS attack is the
most serious attack where the attack source is more than one, often thousands of, unique IP
addresses. In the DDoS attack, attackers first select the vulnerable services which will be used to
perform the attack target. Generally, attackers exploit the vulnerabilities of the services and insert
the hidden code such that the malicious code can be protected from detection. After the attackers

377
have compromised adequate hosts, they use the encrypted communication channels to attack the
victims. [6] Most existing approaches for solving the DDoS problem focus on the specific security
mechanisms, for example, network intrusion detection system (NIDS) detection, firewall
configuration, rather than on the packet routing approaches to defend DDoS threats by new flow
management techniques. Accordingly, this paper implements an SDN-based information security
defense mechanism (ISDM) incorporating three OpenFlow protocol management tools, Open
vSwitch, Ryu SDN Framework, and sFlow-RT toolset to perform traffic management for anomaly
detection, react to new types of DDoS attacks in SDN architectures.

DDoS Attack Detection and Migration of Threat Analysis Process

Assume that partial system vulnerabilities of a cloud service are known and a set of behavioural
profiles associated with each threat source has been identified. The following adaptive DDoS
detection scheme includes a new resolution process of dynamic traffic analysis to track the attack
sources of DDoS according to the behavioural profiles of an AS, thereby developing a resolution
process of DDoS attacks by using NIDS snort for network defender, in which decision rule is
supported by the analysis results from sFlow toolset, as shown in Fig.1. Fig. 1 shows that the
penetration testing associated with malware behavioural analysis incorporated in the framework is
suitable for DDoS attack detection and migration analysis by using sFlow agent and sFlow-RT to
identify the ASs of the DDoS.

Figure 1. The resolution process of DDoS detection and migration.

Four subprocesses for detection and migration of a DDoS attacks were shown as follows.
Step 1: Construct an SDN-based Information Security Defense Mechanism
In the proposed SDN system, OpenFlow protocol and switch enables the remote administration of
a layer 3 switchs packet forwarding tables by adding, modifying, and removing packet matching
rules and actions with two basic components: (1) controller: for determining the network packet flow,
and (2) Flow Table: use the OpenFlow routing table to select the network packet transmission path. In
further, security managers use OpenFlow enabled switch to collect and analyze traffic information
from SDN controller incorporating the sFlow-RT toolset, i.e., sFlow Agent and sFlow Collector.
Step 2: Acquiring Traffic Information
Fig. 2 illustrates, two management tools for OpenFlow are incorporated into the ISDM to form
flow statistics for detecting the suspicious behaviour: (1) sFlow Collector, which is used to collect
traffic information from Openflow switches for further network traffic analysis; and (2) sFlow
Agent, uses as a monitoring tool to manage the SDN control layer for traffic security monitoring by
capturing datagrams of the traffic passing through its monitored ports, and sends these samples to
the sFlow collector.

378
 Figure 2. SFlow network analysis for SDN-based appliances.

Step 3: DDoS Attack Detection

As shown in Fig. 3, the execution sequence of exploits represents the signature of a threat source i
(i = 1,...,m) and comprises a set of methods used in evaluating the attack signature. When deciding
the execution sequence of malicious code, determining the exact pattern of the attack actions is
difficult. On the basis of the concept of an intrusion detection system, the occurrence of DDoS attack
is solved using frequent episode rules [8] by accumulating and associating the security logs as
follows. Generally, episodes are partially ordered sets of events. The frequent episode rule is used to
determine the specific event sequences for appropriately determining the malicious instruction sets of
a threat source, as shown in Fig. 4.
Given an event sequence s = (s; Ts; Te) and a window width win, let the time window of an episode
be given by w = (w; Ts; Te). The support degree of an episode is defined as the fraction of windows
where the episode occurs. Theoretically, given s and win, the support degree of an episode () (i.e.,
MISs) for a single taint path j in s is

|
    |
sup = |
,|
. (1)

Once sup() is obtained, it can be used to predict the probability of an attack occurrence pij from a
threat source for an information flow j from threat source i. In other words, sup() reveals the
connections between attack events in the given security event sequence.

Figure 3. Determine the exact pattern of the threat using sliding windows.

Step 4: Migration of DDoS Attacks

Because of rate-limiting available, traffic filtering is the basis for most defensive approaches.
The defense mechanism in our study addresses the resolution of the problem by limiting the amount
of traffic sent to target. Providing the characteristics of the traffic are correctly identified, loss of
attack can be low. Notably, there is no guarantee that enough packets have been dropped in mostly
379
approaches. In practice, rate-limiting drops packets depending on basis of the exact amount of
traffic. On the other hand, filtering technique is done in the IP-layer which does assure that target is
not overcome, but part of the legitimate traffic might also be dropped.

Implementation of ISDM on SDN Environments

In the experiment the network intrusion detection for smart home system is constructed using the
following four-step procedure as follows.
Step 1: Construct an SDN-based Information Security Defense Mechanism
As Fig. 4 and Table 1 illustrate, Open vSwitch tool assists OpenFlow switches in communicating
with each other by using the OpenFlow protocol via a secure channel to connect the SDN controller.
In the proposed SDN project, the SDN controller uses a Ryu SDN framework in an Ubuntu
operation system to decide the configuration and network packet flow of network devices, such as
access control and security monitoring devices.

Figure 4. SDN-based smart home security management.

Table 1. Experiment environment.

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Step 2: Acquiring traffic Information
The experiment uses the Snort to cooperate with a remote sFlow Collector to gather the datagram
sent from switches using the following instruction. Deploying the Snort can ensure the rapid
identification and resolution of any threat to the network. As the sFlow Collector receives packets,
it updates the counters inside the monitoring module on a basis of sliding time-window mechanism.
Consequently, this approach may reduce the complexity of the flow collection algorithm, thus
requiring less CPU resources.
$ sudo snort -T -i eth0 -c /etc/snort/snort.conf
Then, both the sFlow datagrams and the Snort alerts were aggregated to be transmitted to the
Snort and Ryu SDN Controller for identifying traffic anomaly using the command of sFlow Toolkit.
$ sflowtool -t | sudo snort -A unsock -q -r - -c /etc/snort/snort.conf
Step 3: DDoS Attack Detection
Step 3.1: Deploy the sFlow Data Collector
sFlow Analyser with sFlow-RT provides visualization and identification of network-wide
surveillance of complex multilayer switched and routed environments. sFlow-RT toolkit can assist
manager to send information collected to the sFlow-RT using the following instruction:
$ sudo tcpdump -p -s 0 -w - udp port 6343 | sflowtool -r - -f 192.168.0.250/6343
Step 3.2: Detect the DDoS Attack on SDN Environments
Ryu SDN Framework provides the capability of integration with the Snort to communicate with
each other. The SDN controller and Snort were installed in distinct hosts the Snort is mostly served
as the client, SDN controller as the server. The Snort transmits the security alerts to the SDN
controller for further analysis by running pigrelay.py which can download at
https://github.com/John-Lin/ pigrelay.
$ sudo python pigrelay.py
Collect information collection of SFlow and alerts of Snort for ICMP Flood attack and then sent to
the SDN controller, as shown in Fig. 5

Figure 5. Alert messages of Snort for ICMP Flood attack.

Use visualization function of sFlow-RT to examine traffic information during ICMP Flood attack, as
shown in Fig. 6.

Figure 6. Traffic information of ICMP Flood attack.

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Step 4: Migration of DDoS Attacks
An example for DDoS attack detection and mitigation by using ICMP Flood is discussed. To
identify ICMP Flood attack, manager sets up the detection rules in Snort as shown in Fig.7:
$ sudo nano /etc/snort/rules/local.rules

Figure 7. Set up two detection rules in Snort.

Use Hping3 to simulate ICMP Flood attack in the offense host for verifying the effectiveness of
the information gathering of the sFlow and alert sending of the Snort.
$ hping3 --icmp --flood 192.168.0.105
To against ICMP Flood attack, the SDN controller sends the following commands to OpenFlow
switch for dropping datagrams, when the flow information entering. It shows that the flood traffic has
reduced after a period of time, as shown in Fig. 8.
$ curl -X POST -d '{"dpid":"963371335886", "priority":"32765",
"actions":[{"type":"DROP"}],"match":{"eth_type":0x0800,"ip_proto":"1", "ipv4_src": "0.0.0.0/0",
"ipv4_dst":"192.168.0.0/24"}}' http://192.168.0.104:8080/stats/flowentry/add

Figure 8. Migration of ICMP Flood attack.

Conclusion
The experiment results show that SDN controller can screen out suspicious IP addresses
associated with domain names by creating a blacklist suggested by analysis outcomes from ISDM.
In further, the real-time update of detection rules determined by attack signatures in our model can
be used as an effective intrusion detection mechanism to discover suspicious network connections
based on anomaly behavior analysis in the Snort.

Acknowledgement
This work was supported jointly by the Ministry of Science and Technology of Taiwan under
Grant Nos. MOST 104-2627- E-168-001 and MOST 104-2410-H-168-001.

References
[1] Open Networking Foundation, Software-defined networking: The new norm for networks,
ONF White Paper, April 13, 2012.

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[2] R. Braga, E. Mota and A. Passito. Lightweight DDoS flooding attack detection using
NOX/OpenFlow. IEEE 35th Conf. on Local Computer Networks, 2010 pp.408415.
[3] K. Giotis, C. Argyropoulos, G. Androulidakis, D. Kalogeras and V. Maglaris, Combining
OpenFlow and sFlow for an effective and scalable anomaly detection and mitigation mechanism on
SDN environments, Computer Networks 62 (2014) 122136.
[4] R. Jin and B. Wang, Malware detection for mobile devices using software-defined networking.
Research and Educational Experiment Workshop, 81-88, 2013.
[5] N. Feamster, Outsourcing home network security. In Proceedings of the 2010 ACM
SIGCOMM workshop on Home networks, 2010, pp.3742.
[6] S. Lin, T. C. Chiueh, A Survey on solutions to distributed denial of service attacks, Technical
report, Department of Computer Science, Stony Brook University (2013).
[7] H. Mannila, H. Toivonen, and I.A. Verkamo, Discovery of frequent episodes in event
sequences, Data Mining and Knowledge Discovery 1(3) (1997) 259-289.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

On the Evaluation of the Enterprises Leadership Effectiveness

Qing-Wu SUNa, Shan-Kan HE
Donghua University, Shanghai, China, 201620
Shanghai Lixin University of Commerce Room 4204A, Building 4, No.2800, Wenxiang Road,
Songjiang District, Shanghai, China, 201620
a
Sun9536@163.com

Keywords: Leadership Effectiveness; System Trust; Leading Joint Effort; Learning Organization.

Abstract: Enterprises Leadership Effectiveness (ELE) is the performance and the outcomes that
have been achieved after the enterprises leadership have been performed. To achieve joint effort,
build system trust and build learning organization is the three fundamental way to achieve
enterprise leadership. Leading joint effort is an important way to achieve leadership effectiveness;
system trust is the basis for achieving the success of enterprise leadership; learning organization is
the guarantee of achieving leadership effectiveness. The effectiveness evaluation of enterprise
leadership requires the multiple criteria of openness. In order to meet the requirements of various
objectives, leadership performance evaluation needs not only focusing on performance, attitude,
behavior, cognition; but also needs an open, macro mentality formulated multiple standards
according to different requirements.

Introduction
Generally, Effectiveness means good performance and efficacy that have been expected. The
leaders and the groups of leaders purposely implement leadership on the objectives and
environment, and achieve the leadership effectiveness (Pei Daxing, 1986). Enterprises Leadership
Effectiveness (ELE) is the core of enterprises management. To achieve ELE is the first choice of
the enterprises to strengthen themselves, and to rescue from the crisis. At present, world political,
economic environment are complex; economic globalization, information technology is becoming
more and more obvious, enterprise boundaries blurred; how to implement ELE to realize the goal
of enterprise becomes more prominent. This article has dealt with the evaluation of ELE from the
route of leadership achievement point of view. The second part traces back to some literature on
leadership. Part 3 focuses on the route of leadership effectiveness implementation. Part 4 is about
the evaluation of leadership effectiveness. And the last part is our conclusion.

Literature Review
From the leadership behavior, the leader of the mental model, leadership thinking, Naniel
FPinnow(2008)has argued that how to improve leadership effectiveness through the promotion of
learning the personal charm and personal influence. Stephen PRobbins (2009)has pointed out five
variables to study ELE: the leadership performance; leaders qualities and styles, the
characteristics of followers, the leaders 'behavior and leadership situations. Lapid-Bogda Ginger
(2010) discussed the different personality types on leadership effectiveness of the ascension of the
problem through the combination of personality and professional ability. Paul Mayor has proposed
five pillars of leadership: specific thoughts, plans and balance, enthusiasm and desire, confidence
and trust, and the implementation of the responsibility; and has analyzed the leadership and the
effectiveness of leadership. Bill George has studied leadership effectiveness from the virtue, style,
and pattern of leaders. And Hill and his collaborators have reviewed the literature of leadership
effectiveness (1986-2011), have concluded and defined the judging standard of leadership
effectiveness.
From the above, we know that most studies on leadership effectiveness have dealt with the
384
influencing factors, judging standards and scopes. However, they have little mentioned how to
improve ELE. So this article will propose the route of improving leadership effectiveness.

The Route of Achieving ELE

Leading Joint Effort is an Important Way to Achieve Leadership Effectiveness
Leading Joint Effort. Many researchers believe that the core of the enterprises' leadership
should focus on the leaders themselves. In fact, the implementation of the enterprise leadership
depends on the leading joint effort. Leading joint effort is the synergy that emanate from the
people,environment and resources correctly, in order to achieve the desired goal. The element of
the people includes the leadership, the subordinate and stakeholders of the enterprise.
Environment refers to the comprehensive environment, included the soft environment, which is
related to the enterprise's goal. Resources refer to material resources related to the achievement of
leadership. In the condition of social licensing, scientific construction, configuration, These three
elements play the greatest synergy, the production is conducive to the realization of the enterprise
objectives of the force.
Leading Joint Effort Composition. The formation of the leading joint effort requires a high
degree of matching between the leader and the follower. Leadership ability formation, is mutual
recognition and fit between the leader and the follower in team work, in the aspects of target,
methods, personal ability and quality (collaborative leadership and shared leadership research
have been studied). Leaders should match their leadership behavior, leadership style with their
subordinate. And followers must have the ability and the willingness to come from the heart of the
business requirements, which means that there is a high degree of readiness. The relationship
between the degree of preparation and the leadership has a positive correlation, and the situation
theory proposed by Dr. Paul has been discussed. And the relationship between the degree of
preparation and the degree of matching and the results of the leadership in the practice and
research shows that it has a positive correlation.
Readiness (I: Leadership effectiveness)

Match
Figure 1: the relationship between readiness and match

The formation of leading joint effort needs "watering down". Factors that influence the
formation of leadership effectiveness are very complex, which includes team members on a
common vision of recognition, a leader and a follower. In addition, it also includes the situation
and tendency of the development of things.
The achievement of leading joint effort needs the transformation from me to us. Leading
joint effort is not the ability of individual, but the collective ability of the people involved matter or
organization.
Maximization of Leading Joint Effort. Maximizing Leading joint effort is the joint efforts of
the enterprise and its environment as a whole to form the maximum tension. The gap between the
Leaders and subordinates must be very small or not exsit. They should not only to maintain a high
degree of matching, but also must be a high level of matching. In practice, a lot of business leaders
are very good, but the operation of the enterprise is very bad. One reason is that the matching
degree is not good enough. Because in the team, the ability level gap between team members and
385
leader is too large, resulting in not forming a cohesive force.
The degree of voluntary of the subordinates influences the degree of the realization of the
leading joint effort. The realization of the leading force can be realized according to the voluntary,
and it can also be realized through the external factors. Voluntary can not only reduce management
costs, save resources and has higher efficiency, but also can stimulate the potential that the
employees have. The external force or other factors can also achieve the leading joint effor, but the
cost is high, and it is difficult to continue, because the mood of the employees is often more
depressed.
System Trust is the Basis for Achieving the Success of Enterprise Leadership Effectiveness
System Trust. Trust which is the core of the contemporary economic activity is one of the three
leading factors in the enterprise. Leonhard Sprung (2004) pointed out in the next few decades,
trust will be the central issue in the management field. Trust scale is the only explanation for
economic development. Trust is the basis for the leadership of the staff of the enterprise. At present,
the world becomes more and more virtualization, the organizational boundaries are more and
more fuzzy, trust plays a more and more important role.
System Trust Building. System trust building is a very complicated problem. It can be
influenced by both realistic conditions, and historical, cultural and traditional ideas. In reality, in
the absence of key to keep external binding and environmental stability conditions, the
establishment of a trust system is the human factor, namely the leader and the follower must to
have a good "practice" -- both human practice and ability to practice. Inside the enterprise, once
the trust of the "penetration and transmission" is built, it will slowly accumulate as a corporate
culture. This trust play the role of "Occam's razor", the doubts of the risks and additional cost
remove from the system, so as to reduce the cost and cohesion, to realize the leadership
effectiveness.
We can view system trust as figure 2. This system is like a fixed trust rope fixed table with three
legs, or called fixtures. with the fixtures, superior, intermediate, junior can constitute a real system.
If one of the three legs does not believe in their own organizations, leading to tissue fixation rope
or a fixture damage, can not play the role they should play, the other two legs wouldn't have
completed their goals, the organization will immediately die.

Plan Goal

or
ni
ju
t
dia
me
er
int

rior
supe

Figure 2: system trust building

Learning Organization is the Guarantee of Achieving Leadership Effectiveness

The construction of learning organization is the organization foundation and organization
guarantee for the realization of ELE. The results of the enterprise leadership is completion degree
of the enterprises objectives after the leader, the manager and the executive in a certain
environment have integrated all the resources. The key to the realization of enterprise leadership is
the environment of the enterprise and the people. Efficient leadership must have an efficient
leadership decision-making team, management team and implementation team. Those three are
not mutually separated from each other. Due to the current social information is huge, the need for
high quality, high talent to build the enterprise is very prominent.
Learning organizations should have the following principles. Firstly, learning organization
should have its own internal training. Whether it is the leader and followers, in addition to learning
management knowledge, leadership knowledge, skills, their practice should strengthen the quality
386
of human nature, temperament training. Secondly, learning organizations should View the
environment inside and outside the enterprise with a systematic view. Another factor which affects
ELE achievement is that enterprise is an organization needs having various relations with the
outside world, how to ensure the success of the enterprise and the outside is indispensable. Lastly,
Learning organizations should transform the value of the leaders. As the leader of the enterprises,
the leader should put the customers, employees and shareholders of the order.

The Evaluation OF ELE

There are some different opinions on how to evaluate the leadership effectiveness, we should
have some premises before evaluating.
The Premises before Evaluating ELE
In order to study the evaluating ELE, we can have table 1 to illustrate.

Table 1: The organizational structure of studying ELE

The premises of evaluating

The index The categories of index
leadership

The resources of Self-report, Senior, subordinate,

(1) Who evaluate?
leadership measurement colleagues
(2)What the pattern of Survey, interview, observation, data
The categories of data
evaluating? base, company records

(3)What the domain of The categories of Performance, attitude, behavior,

evaluating? leadership effectiveness cognition

Short term, long term, horizontal,

(4)What the time period? Division of time
vertical
(5)What the organizational
The scope of leadership Individual, group, unit, organization
scope?
(6)What the organizational Senior management, middle
The level of leadership
level? management, management, mix
Those 6 problems are the premises of evaluating ELE. They have solved the problems like who,
how, when, what etc, and have defined the boundaries and the domain, have underpinned the
evaluating problems.
The Factors of Evaluating ELE
After solving the premises, we can have the following factors to evaluate ELE, those are
Performance, attitude, behavior, cognition. We can have table 2 to illustrate.
387
 Table 2: The factors of evaluating ELE

domain categories The examples

Bankruptcy; sales growth; market value; profit; return on sales,

tangible
return on investment
Intangible The evaluation of others
Performance
performance Annual performance ranking
Ranking Innovation ranking
Cynicism; recognition; organizational commitment; satisfaction;
attitude
self-esteem; trust
attitude motive Effect; empowerment; licensing; self reconciliation; intrinsic
motivation
emotion Tired; worried, depressed, complaining, psycho pressure
behavior Unit Cooperation, communication process, change action, people's
progressive behavior
Civilian Organization five factor model, helping behavior, and social
behavior behavior
Self-report Personnel changes, personnel, and the influence of the upper level.
cognition conscious An atmosphere; a leader's original line; support that can be
conscious of ; the organization structure; the mental model.
Besides those factors, we need developing multiple criteria to meet the objective of a variety of
considerations according to different conditions.
Firstly, Identifying multiple standards and judging their achieving extent. The goals of different
enterprises vary, the factors to evaluate ELE vary. The effectiveness should not only evaluate from
the factors above, but also from the environment index, political index.
Secondly, the achieving extent of the synergy between the followers and the leaders. The
achievement of the leadership is the interaction outcome between the followers and the leaders. If
the synergy between them is not enough, the success of the leadership should not happen.
Thirdly, judging from the quality recognition of goal progress. It concerns with the leadership
has strengthen the members of the team, the commitment of the team and the trust to achieve the
goal of success.
Besides, we should also recognize the law, institution, culture, and customs may influence the
leadership evaluation.

Conclusion
Enterprise leadership effectiveness is the achieving extent of the original target of the
enterprise through the synergies of people, resources and environment. The way and guarantee to
realize the ELE are to realize the leading joint effort, establish the system trust and establish the
learning organization. In order to better achieve ELE, Only through the synergy of leading force;
only on the basis of trust, the enterprises can ensure Pareto optimality of people, resources, and
environment, so as to form a leading joint effort, and maximize the leading joint effort, complete
business objectives. The establishment of learning organization is the organization guarantee for
the realization of enterprise leadership. The evaluation of the leading effect can be considered
from three aspects, which are the comprehensive index and the degree of realization, the
realization of the synergy between the leader and the follower and the quality of the target process.
We can have the following policy recommendations from the above: There are not any simple
answers about the evaluation on ELE. The choice of justifiable standard depends on the goal and
the evaluators value. In a certain period, there should be different standards.

388
References:
[1] Alice M.Black,Grarce W.Earnest,Measuring the Outcomes of Leadership Development
Programs,Journal of Leadership &Organizational Studies,November 2009,184-196
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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research of Automobile Industrial Development Policy under the

Background of Internet + Automobile Strategy

Zhao-Wen DENG1,a, Bao-Hua WANG1,b,*, Xiao-Bing CHEN1,c

1
Dept. of Automotive Engineering, Hubei University of Automotive Technology,
Shi yan 442002, China
a
dengzhaowen1@163.com, bwbhbenz@126.com, ccxbg16819@163.com
*Corresponding author

Keywords: "Internet +"; "Internet + Automobile"; Information Securit.

Abstract. Confronted with Internet companies entering the automotive industry, the subversive
revolution was caused by "Internet + automobile" to the traditional automotive industry. Through
introducing of" Internet + automobile "strategy, the development trend of "Internet + automobile" was
analyzed, and the facing challenges were analyzed from technology, industry, policy level. Finally,
under the background of "Internet + automobile" strategy, the development of the automobile industry
policy recommendations were proposed from the industrial development, technical route and
specification, automobile private custom, car rental industry, the second-hand car business and
Internet marketing. The policy recommendations proposed have a positive role to guide the
automobile industry healthy and orderly development.

Introduction
Recently whipped up a wave of Internet business building cars boom, Letv, Huawei, Tencent and
other Internet companies have entered the field of building cars. Beijing auto and Letv holded together
to create the ecosystem of internet smart car, Foxconn and Tencent and China Harmony Auto Holding
Limited announced the "Internet + smart electric car" framework for cooperation, Alibaba teamed up
with SAIC "bet" Internet + automobile technology, Baidu is studying of driverless cars, Huawei and
Dongfeng teamed up to launch Windlink, Tesla business idol of millet to push "Misra". Major
domestic Internet giants have been involved in "Internet + automobile" [1].
"Internet + automobile" is a revolutionary fusion, is a redefinition of the traditional car, will bring
far-reaching effect to the automobile industry in the future, cause great changes in the pattern of the
automobile industry. Through introducing of" Internet + automobile "strategy, the development trend
of "Internet + automobile" was analyzed, and the facing challenges were analyzed from technology,
industry, policy level. Finally, under the background of "Internet + automobile" strategy, the
development of the automobile industry policy recommendations were proposed from the industrial
development, technical route and specification, automobile private custom, car rental industry, the
second-hand car business and Internet marketing. The policy recommendations proposed have a
positive role to guide the automobile industry healthy and orderly development.

"Internet + Automobile" Strategy

"Internet + Automobile" Action Plan

With the firstly proposed to the call of the "Internet + action plan" in the two sessions of our
country, promoting the combination of the modern manufacturing industry with the mobile Internet,
cloud computing, big data and networking, making "Internet +" boom sweep the fusion of various
industries[1]. Internet and traditional industry has increasingly become a hot concern, cross-border

390
integration of the Internet to the traditional industry brings revolutionary influence [2]. The essence of
"Internet + " is the online and datamation of the traditional industry through
The transformation of the Internet[3].
"Internet + Automobile" Strategy
The birth of "Internet + automobile" is the revolution of automobile industry, was originated from
the cross industrial cooperation between the Internet and car [4]. "Internet + automobile " strategy is
to realize harmonious unity of the "human - vehicle - Road - environment", which cars have
intelligent computer control, wireless Internet communication, vehicle mobile terminal function.

"Internet + Automobile" Development Trend

The Cooperation between Internet Companies and Car Enterprise is an Inevitable Trend
The cooperation between Internet companies and car enterprises is the inevitable trend [5].
Bilateral cooperation has their own value orientation and realistic need: to enrich the content of the
vehicle in the form of integrated Internet, meeting the user rich senses is the technical advantages of
Internet companies; Owning a hundred years automobile manufacturing process, to ensure safe
driving is the car enterprises advantage. For better meeting the humanized service requirements, only
two complementary advantages, technical cooperation, achieving "win-win" situation for.
Human Service is the Starting Point of Cooperation
Human being is the user of a car, satisfying people's sensory experience is automotive development
direction in the future [5, 6]. Increasing the proportion of service income is the inevitable way of
successful transformation of enterprises, and "Internet + automobile" owning the characteristics of the
Internet have fully release the potential service ability. Around the vehicle active safety, vehicle cruise
system based on information, entertainment and anti-jam driving experience, and post market service
experience including: marketing, insurance and maintenance are the key and breakthrough point of
cooperation between Internet companies and car companies [7, 8].
The Sensory Experience is the Key of Vehicle Control Development
Automotive pressing, welding, painting, assembly and chassis, engine, body, electrical equipment,
four total assembly have been already mature technology, and the sensory experience of vehicle
control development is the soul of "Internet + automobile", which is the difference key from the
traditional car [6].
New Energy Vehicles is the Breakthrough of the "Internet + Automobile"
The real reason of opening up the producing of new energy vehicles to Internet enterprises is that
Internet companies have advantage of the intelligent management technology development for battery
system. The new energy vehicles have the inherent advantages of the integration of "Internet +
automobile", "Internet + automobile" will firstly breakthrough in the development and application of
new energy vehicles, with mobile internet the depth of integration will become an important
development direction of new energy vehicles.

"Internet + Automobile" Facing Challenge

Technical Level
System security and information security risks: in big data model, automotive personal privacy
leaks more easily, data transmission are more likely to be intercepted, "Internet + automobile" are
lacking of a unified and perfect dynamic information security technology support system. In the
fusion process about smart car, the mobile Internet and car networking is bound to face new security

391
challenges [5]. If everyone can control the car through the Internet of critical systems, it will bring
significant security risks. The long test cycle: The long test cycle of the automotive industry compared
to the Internet industry is more longer, the testing cycle of vehicle terminal in every generation tends
to go through safety testing period of 1~1.5 years.
Industry Level
The traditional car market still has growth potential: in 2015, although the traditional car growth
has slowed, but the market was still growth space, new profit point was unclear, the manufacturers
intervention was little. The manufacturer cost considerations: The technology costs and marketing
costs needed to develop a new "Internet + automobile" is high, so that manufacturers would not take
the risk.
The "Internet + automobile" development was controlled by the communications industry[9].
Automotive eco system in the car forms a closed system, but it must to form an open system between
vehicles and the system, and the cars driving on the road have very high requirements on the mobile
communication network. Automotive eco system can only rely on wireless communication network,
it is very high for the operator to construct the network, At the same time, the automotive eco system
is also controlled by network.
Policy Level
National policy influence significantly. 2014 November, the national development and Reform
Commission launched < The interim provisions for new pure electric car production enterprises to
invest in the project and take the production access management (Draft) >, plans to release a pure
electric vehicle production admission conditions. From the basic conditions for enterprises to invest,
investment projects, investment projects application and approval of new enterprises production
access management made clear provisions. In addition to the acquisition or other vehicle enterprise
cooperation, the hope of the Internet companies would enter separately into pure electric vehicle
production in the field is frail[9]. So the policy changes have a crucial impact on Internet companies
entering the automotive industry.
The technical standard policy problem. At present the car networking in our country has been
provided with the market and institutional basis, but there are still many problems in terms of
technology and industry system construction[9]. On the one hand, Chinese enterprises were lack of
accumulation of technology, key technology research and development lag, market development and
the construction of supporting facilities can not meet the needs of large-scale development Internet +
automobile". On the other hand, there has not yet formed a complete industrial chain between
enterprises and consumers in the construction industry system, government departments, motor
factry, and effective coordination mechanism. The lag related technical standard of internet industry
was not been unified and also restricted its development, The inspection technology and international
standard for "Internet + automobile" are almost blank. The is difficult to come into contact with
international standard.

"Internet+ Automobile" Industrial Policy

The Introduction of the Develop New Policies for "Internet + Automobile", Accelerating the
Development of Automobile Industry " Internet + Automobile "
The comprehensive clear "Internet + automobile" definition, designating the form of "Internet +
automobile". The specific support guiding policies were introduced in market access, industry
oriented, the construction of credit system.
Promoting the transformation and upgrading of traditional auto industry relying on the Internet,
encouraging car companies to use of Internet technology to change the traditional marketing network
marketing model and service mechanism, enhancing the breadth and depth of services, increasing the

392
proportion of service income. Studying on the policies to attract and nurture the Internet enterprises,
encouraging the Internet industry and automobile manufacturing industry to further integration.
Establishing Scientific and Reasonable Internet Car Technology Development Route.
National should guide and encourage the development of "Internet + automobile" technology and
related industries should actively carry out intelligent vehicle research and industrialization, focusing
on the development of the automotive integrated information technology, intelligent and interconnect
integration technology, unmanned technology. The government should promote enterprises solve
related technical barriers, and to form a standardized, formulate scientific and reasonable" Internet
car" technology development route.
Making the Technical Specification Security for Internet of Vehicle Safety
As soon as possible to develop Internet vehicle safety and anti-theft of technology standard
mandatory requirements, establish relevant industry standards and norms to protect the privacy of the
owners, gradually establish dynamic security protection system, set up internet vehicle product
certification and testing organizations, formulate scientific market admission management system,
make certification and testing work rules, to develop intelligent vehicle safety inspection and testing
standards, gradually bring into line with the international standard.
Introduction to Promote the Rapid Development of Automobile Private Custom Protection
Measures
With the rapid development of China's automobile market, consumer demand showing a variety of
regional, multi-level, multiple personality characteristics, consumer personality, self - conscious, the
requirements for the vehicle had been changed from the simple means of products to more personality
direction. From luxury to ordinary cars, private custom perfectly reflects the owners personalized and
luxury demand. Although, at present in the domestic automotive private custom is still in the initial
stage, but with the boost of "Internet + automobile" storm, private custom will been developing trend
of automobile industry in China, which is the new growth point of profit. Consumers can according to
their interests and needs, through the Internet free quickly select models and configuration, finally by
the dealer responsible for vehicle safety. In order to ensure the rapid and healthy development of
private custom. The private custom measures has been introduced by the state needs as soon as
possible,
Strengthen the Integration of the Car Rental Industry and the Depth of the Internet.
Strengthen the car rental industry and the Internet the depth of integration, forming of new power
for the development of the industry. The State encourages the car rental industry to make full use of a
new generation of information technology, accelerate the automotive services of the Internet and data
services online, use data to fully tap the value of various types of data resources, innovative business
model and service model, promote the healthy development of the car rental industry. Establishing
channels for docking data with the Public Security Bureau and the Bureau of traffic control, to realize
data sharing, the data filtering function and establishing system authentication system.
Accelerating the Development of the Internet Second-hand car Business
The State encourages the circulation of second-hand car, to accelerate the development of the
Internet second-hand car business. Relevant departments should actively create conditions. Internet
second-hand vehicle transaction management approach were unified and standardized, the
second-hand car field were infiltrated, the second-hand car trading tax collection methods were
adjusted, the enthusiasm of the second-hand car business were stimulated, Internet second-hand car
trading activities been convenient, the Internet second-hand car trading were nurtured and developed.

393
Introduction of Policies to Promote the Automobile Marketing Internet
Introduction of policies to promote the automobile marketing internet, promote the automobile
marketing to a new sales channels constitute diversified pattern of development, such as vertical
websites and mobile terminal. to promote the development of electronic commerce, meet the needs of
the development of enterprise sales chain reconfiguration, while strengthening the management of
Internet marketing, regulate the activities of car service marketing, explore the Internet and the store
to match the new sales model.

Summary
"Internet + automobile" is a subversive revolution to traditional auto industry. The cooperation
between enterprises, Internet companies and traditional car is an inevitable trend in the development
of Internet + automobile, car humanization service is the focus of cooperation, and new energy
vehicles is the key breakthrough. "Internet + automobile" is facing severe challenges in technology,
industry and policy the level, only as soon as possible on the introduction of "Internet + automobile"
to develop new policies, accelerate the development of automobile industry. introduce the scientific
and reasonable technology roadmap for "Internet + automobile ". In order to promote the healthy and
orderly development of the industry for "Internet + automobile ", focusing on the development of the
Internet of vehicle safety and technical specification security aspects. strengthening the depth
integration between car rental industry, second-hand car business marketing the system and the
Internet.

Acknowledgement
This research was financially supported by science and technology program foundation
"2015BDF038" in Hubei province.

References
[1] The development statistical report of China on Internet[M]. China Internet Network Information
Center, 2011.
[2] Ou Li. The development trend of Internet[J]. Technology and market, 2010.01.
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Market observation. 2010.02.
[4] Wang Hai Yun. "Internet + automobile": fusion rather than subvert[J]. Financial sector.2015.04
[5] Jiang Xingyu. The alliance between car prices and the Internet remains to be further [J]. vehicles
and accessories. 2014.44.
[6] Yue Yang. Network help the auto industry "around" the mainstream consumer[J]. International
advertisement, 2009, 03.
[7] Zhang Yongwei. and the inspiration of policy from the "Internet +"[J].2015.6.
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management.2015.3.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Potential Management Rules: Creating, Changing and Its Mutual

Influence on Enterprise Employees' Behavior
Bang-Jun WANG1,a,*, Wen YAO1,b
1
School of Management, China University of Mining & Technology, Xuzhou, China, 221116
a
wbjun@126.com,byaowen3009@163.com
*Corresponding author

Keywords: Potential Management Rule (PMR), Producing and Changing, Employee Behavior,
Mutual Influence.

Abstract. Potential management rules, as in the spontaneous formation of business process

management activities, which followed by the enterprise employees that do not need outside
intervention authority and organizational behavior and norms, and it has become a basic criteria that
business manages its internal affairs and deals with its interpersonal relationship. Based on defining
of the concept and synthesis of research studies, this paper has analyzed its producing, evolution
and the impacting on employee behavior of potential management rule at length. Firstly, it has
analyzed the behavior-oriented potential management rule behavior caused by the employee and the
mutual influence between the two. Further, it has analyzed the changes and its impact on employee
behavior of potential management rule. As a rational individual, an employee, highlighting to
change the rules in the potential loss or reduction during the search for profitable opportunities, will
continue to adjust its behavior to adapt to the change. Finally, the emphasis in the management
process, enterprises will only highlight the value of staff recognition and behavior integrated into a
unified value system and code of conduct, forming a unique management model to manage benign
management of the potential management rule to promote the healthy development of enterprises.

Introduction
Potential management rules, as in the spontaneous formation of business process management
activities, refer to which followed by the enterprise employees that do not need outside intervention
authority and organizational behavior and norms, including values, cultural tradition, moral ethics,
ideology, and so on. Dentally, in the spontaneous formation of business process management
activities, compared to the formal rules, potential management rules are behavior pattern, which
followed by the enterprise employees, expressing through intuitive understanding, not verbal
instruction.
The business potential management rules is not only the enterprise interior objective existence,
organization system own inherent rule, but also a most ingrained composition in the enterprise
culture, it is a basic criteria that a business manages its internal affairs and deals with its
interpersonal relationship. As a result of the potential management rules appearance, people
transform their understanding of the business management essence from the rigid method rule into
the artistic skill which includes rigid and soft ways. According to the potential management rules
request, to the enterprise in person's mode of administration should be the potential management
rules restraint, the cultural subtle suggestion and the spirit of enterprise impel. Future
superintendent cannot only rely on the management tools and rules, but also need more and more
penetrate to the business management artistic stratification plane strengthens the soft management,
like work style, concept, custom, convention as well as shared vision and so on, in the management
processes, integrating all staff's value identity and the code of conduct to form the management
pattern which is characteristic, impetus enterprise's long-term development by potential
management rules.
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The Analysis of Relationship between PMR and the Enterprise Employees Behavior
Human's behavior is initiated by the motivation, the enterprise employees behavior is also
precisely one kind of intrinsic motive external attribute in specific enterprise environment. But the
enterprise employees ' behavior, locating with the environment limit, not only inside purely, but
also at the same time receive exterior influence of its locating environment which decided by its
innermost feelings' motive factor, management formal rules is precisely this exterior restraint. The
management formal rules affect staff's behavior by the rigid restraint, displaying the clear
instructions of rewards and punishment.
PMR which Produced from the Enterprise Employees Behavior
In the business, especially in eastern organization, employees behavior is regulated seemingly by
managerial formal rules (MFR). However, according to individual rationality, its behavior is
actuated by potential management rule (PMR). These potential management rules are not a
community's behavior from the very beginning, but stem from individual behavior, when specially
management formal rules have the conflict as well as regarding the enterprise staff's restraint with
its subjective judgment and the behavior meeting the barrier of the enterprise environment and the
disturbance, not satisfying its innermost feelings need, germinal as the atonement produces from
this gradually make ups.
MFR
Impede

Attempt
Attempt
Continue
Success
Needs
Repeat
Tacit PMR

Attempt Continue
Needs
Success

Attempt
Impede

MFR

Figure 1. The potential management rules (PMR) initiated by the employees behavior.

The single staff's individual needs take the beginning of which the single management potential
rules producing, when the staffs needs stimulate the motivation of action, he will attempt each way
to satisfy this kind of innermost needs, but if this kind of attempt behavior contradicts to the
enterprise formal rules, the formal rules will have the impediment function on. The individual will
go around this kind of impediment to try every kind of ways to meet the need, if some attempt
behavior succeeded exactly in solving this problem, this behavior would become the individual
knowledge source through the practice study, and it centralized first choice stored up in his memory
storehouse, when meeting same or similar scene followed in the memory. This kind of study
imitation effect of single individual will similarly manifest on others, and this behavior enables to
become in this community one kind of perspective knowledge, and will produce gradually and grow
up to an item of potential rules.
Influence of PMR on Enterprise Employees Behavior Guidance
Similarly the achievement already existed in the management potential rules will also have the
influence regarding the enterprise staff's behavior. This kind of influence mainly manifests in that
whether there is uniformity between the management potential rules and the individual behavior

396
goal guidance. Before acting some behavior, the individual must carry on the decision-making and
the judgment identically on whether there is uniformity between this behavior goal guidance and the
management potential rules, if does, then they will make this kind of choice identically, otherwise,
they will adjust their behavior, in order to uniform with the management potential rules, specific as
shown in Fig. 2:

Conformity
Behavior of Goal
Motivation goal orientation
Staff PMR
behavior
Expected Regulatory
goal behavior
Unconformity

Figure 2. Influence of PMR on staffs behavior goal guidance.

The Mutual Influence between the MPR and Enterprise Employees Behavior
The single staff's attempt behavior expands gradually to the frequent behavior, and has carried on
the diffusion and propagation in the enterprise, but not by formal behavior, namely through
individual by informal channel propagation; On the other hand we study on the management
potential rules influence on employees behavior, this kind of influence manifest that if employees'
behavior consistent with the management potential rules' request, it will have the positive forward,
if not, inhibition displays, manifesting as one kind to concealed distinguish different from formal
rules imperative mood.

Produce

Staff behavior
PMR

Uniformity+
Unconformity-
Figure 3. The interactive relations between employees behavior and PMR.
Management potential rules positive and negative incentive function on staffs behavior acts
precisely through the control in the positive and negative feedback, when its positive, the
management potential rules will encourage this behavior, causing build-up effect, meanwhile the
management potential rules reinforce gradually their own in this kind of accumulation; When the
negative feedback occurs, it will weaken staff's behavior frequency, becoming one kind of
important factor influencing the staffs behavior into to guidance.

Changing of PMR and Its Influence on Enterprise Employees Behavior

The management potential rules have manifested the perspective knowledge and which is the
enterprise staffs accumulate, temporarily and limited individual and others knowledge. Its
appearance, in fact is the process which is gradually forming the common knowledge of behavior
rules, during the individual following and learning, the exact manner studying the way includes the
rote learning, the imitation, the creativity to solve the problem specifically, canniness and hitting
upon and so on. The management potential rules are also the effective behavior way which is the
result over others that the doer approves subjectively in other low efficiency even invalid behavior
way, is the result of heaps of times trying wrong. This kind of unceasing trial mistake process, on
the one hand is the process staff adjusting own behavior to the management potential rules, is also
the efficient cause each kind of different attempt behavior act on the management potential rules
changing.

397
 Hayek (1967) believed that the social evolution is the unconscious product in the cultural process
of social choice, disseminating, studying behavior rule and duplicating. Group who adapt better to
the environmental community dominate in the society, in fact it propagandizes a more superior rule
unconsciously, leading the way, imitated by other action parts or communities, and diffusing
widely. The diffusion order (market system) is the spontaneous. The evolution system is not the
pure rationality (does not give a thought to the result of completely experience) design, also not the
result of chooses in the known system foundation, but is the result of open system competitive
process. The more spontaneity order conformed to the rule wait to be discovered, instead of being
created desirably. The effective system is inevitably the discovery unconsciousness result through
the trial wrong process, in the trial wrong process; only by this way may the knowledge of choices
be achieved. Regularly the choice is completed in a situation that lack of the selective rule
knowledge. Therefore, the compatible standard of the rule evolution can only be feasible, but is not
most superior. The process that system appears is similar to the innovation process; the effective
plan gradually becomes the social system through the choice mechanism and other peoples
imitation (Gloria-Palermo, 1999; Hayek, 2003). These system followers will seek the rational
choice in the changing process, forming the contact balance through each other theory.
The PMR Changing Process and Its Characteristics
We can use Fig. 4 to indicate the management potential rules changing process:
Exterior

Internal crisis New PMR

Original
PMR
Interior surges

Time
Figure 4. PMR changing process.
The management potential rules change gradually under the enterprise internal crisis as well as
the exterior surges, the original management potential rules evolve gradually to the new one, the
primary cause is the influence between enterprise members interaction. The enterprise employees
as social members, are unable not to be affected by the social morality, ethics and the values which
are also changing, so we can only change the potential rules which originally from its behavior to
adapt this kind of exterior change. At the same time, regarding a great modern enterprise which is
of great liquidity, the new staff joining unceasingly conflicts with the senior staffs inherent idea
will similarly initiate the original management potential rules changing.
In the changing process of the management potential rules, the majority of management potential
rules are at the same time inheriting from the prevention management potential rules system, based
on the linear relations; On the other hand it is a sudden change the enterprise management potential
rules have in the significant transformation process faced with surges, non-linear relations. The
basic characteristic in some enterprises management potential rules, will change when the changes
of individual management potential rules accumulates to a critical point, inside there is one process
from the quantitative to the qualitative change. Therefore the changing process of the management
potential rules is similar to one kind of evolution process.
The Influence of the PMR Changing on Employees Behavior
Since the employees behavior interaction as well as the influence has initiated the management
potential rules changing in the enterprise. To members who defend stubbornly the original potential
398
rules and become aware of the changing slowly, they will feel that the inherent behavior pattern is
under surges, with the expected benefit dispossessed. In order to make up the lose and obtain the
benefit which brought by the management potential rules changing, new potential rules will be
created, and diffuse gradually in the enterprise, leading and affecting the choice of staffs behavior
strategy. This is also a process of positive feedback.
As the enterprise management potential rules consist of the originals and the new management
potential rules, and many potential rules are close related, an imbalance in a specific potential rule
of the enterprise staffs behavior means that the entire potential rules system is imbalanced.
Simultaneously some specific management potential rules change, causing the staff s behavior
strategy arrangement changing to adapt to the imbalance. If the individual's rationality is completely
rational, and this kind of potential rules changes do not require time and expense, when the
enterprise staffs behavior makes reaction in this imbalanced potential rules system, one kind of
balanced structure immediately will directly change to another kind of balanced structure. However,
the individual rationality is limited, it has surpassed the knowledge scope of individual ability to
comprehend all potential rules changing and simultaneously design all the best behavior strategy
arrangement, therefore the individual's behavior can only be an individual and partial superior
choice, but not the most superior arrangement of overall situation.
And individuals who have different functions of different experience in the potential rules, is
also different on the imbalanced degree and the reason sensation, he will seek different ways of
division on changing benefit. To make a set of new behavior rules be accepted and used, individual
needs to find out gradually in the behavior and obtain consistently. Therefore, when there is
imbalance, the potential rules changing process most possibly occurs from the original potential
rules system, and can only pass to other institutional arrangements gradually. This kind of changing
process takes place in a historical defined potential rules, and takes this present system as the initial
condition. Moreover when enterprise is facing the exterior great surges and the environmental
uncertainty, it is of big sensitivity to this kind of original value. For example: In an enterprise the
staffs liquidity is greater, the speed of changing of the potential rules is also higher. The higher
liquidity will make staffs be easier to give up the originals and accept the new management
potential rules in enterprise. This may explain why enterprise's values and ethics are generally
changing in competitive market economy unceasingly, but actually settle in the traditional
economy. And the staff new joined in the enterprise possibly becomes the motivation of the
management potential rules changing compared with the old ones, producing so-called the
generation gap between the new and senior staff regarding the management potential rules.

Conclusions
The harmonious degree of enterprise development should also include the harmony between the
management formal rules and the management potential rules. As glorious as China which has a
long history and cultural traditions, the more management formal rules are from the overseas, but
inherited down from the past management potential rules and other customs, the convention and
social morals could without doubt have the contradiction with the artificial design or the
introduction formal rules, through the research of the potential rules might treat and solve these
problems correctly. With transforming and changing gradually the ingrained bad management
potential rules, it will adapt to the enterprise's goal.
Therefore, future superintendent cannot only rely on the management tool and the system, but
also need more and more penetrate to the business management artistic stratification plane
strengthening the soft management, like the attitude, the idea, the custom, the convention, the
shared vision and so on, conforming all staffs value approval and the behavior way to the conform
value system and the standard of conduct in the management process, to form a management pattern
which is characteristic, pushing forward the enterprise's healthy development by benign
management potential rules.

399
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133-139.
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[16] Organ, D.W., 1988, Organizational Citizenship Behavior: The Good Soldier Syndrome [M],
Lexington, MA: Lexington Books.
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People's Publishing Agency .2000.
[18] F.A. Hayeke. Individualism and economic order [M]. Beijing: The life studies new knowledge
San Lien Book Store, 2003.
[19] O' Driscoll G. P., Rizzo, M. J., 1985, the Economics of Time and Ignorance [M]. Oxford: Basil
Blackwell.
[20] Gloria-Palermo, S., 1999, Discovery Versus Creation: Implications of the Austrian View of the
Market Process, in Groenewegen, J., and Vromen, J., eds., Institutions and the Evolution of
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USA: Edward Elgar Publishing Limited.

400
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Development of Common Duct in Taiwan and Its

Enlightenment to China
Qi-Ming CUI1,a,*, Hong ZHANG2,b, Xiang WEI3,c
1,2,3
Beijing University of Civil Engineering and Architecture, China
a
657475636@qq.com, bzhanghong@bucea.edu.cn, c465503090@qq.com
* Corresponding author

Keywords: Utility tunnel, Common duct, Taiwan, Enlightenment.

Abstract: Utility tunnel built in the urban underground is used to hold two or more urban pipeline
engineering structures and ancillary facilities, that is also known as the common duct in Taiwan.
The construction of utility tunnel can effectively eliminate the "zipper of the road" and reasonably
use underground space, which is the important direction of modern smart city in sustainable
development. This paper summarizes the development course of common duct in Taiwan area and
discusses its accomplishments from construction achievements, the legal system, funding sources,
system planning and public pipeline database. On this basis, according to the existing problems in
the development of utility tunnel in China, this paper points out some enlightenments that China
gets from the development of common duct in Taiwan, so as to provide positive enlightenments for
large-scale construction of utility tunnel in our country.

Introduction
The urbanization rate in our country has reached 56.1% by 2015, with the urbanization process is
accelerating, the pressure for maintaining normal operation of the city municipal pipeline keeps
increasing, the lack of scale of underground pipeline and low management level were exposed. For
example, some cities have storm flooding, pipeline leak explosion, road surface collapse events, etc.
In addition, the traditional way of directly buried pipeline leads to the frequent road excavation,
brings inconvenience to residents and operation maintenance, which results in higher social costs.
With the development of urbanization in our country, the traditional way of directly buried pipeline
has exposed many shortcomings, which can't meet the needs of the modern urban life. The
introduction of urban infrastructure construction and development of new pattern is the key to solve
bottleneck of the urban infrastructure development. In this case, the utility tunnel as an intensive
municipal infrastructure can effectively solve these problems.
The concept of utility tunnel originated in Europe in the nineteenth century, its technical level has
been fully mature and got great development in many cities. Utility tunnel has become a modern
symbol of city municipal construction management in some developed countries and regions after
one hundred years of exploration, research, improvement and practice [1]. However, the
construction of utility tunnel in China starts late and develops slowly; the main reason is the
question of construction funds and operating management. The development time of common duct
in Taiwan is the same as China, but the construction of common duct in Taiwan has made great
achievements. This paper summarizes the development of common duct in Taiwan to provide
enlightenments for construction of utility tunnel in China.

The Development of Common Duct in Taiwan

Taiwan brought in the concept of common duct from Japan in 1989, enacted the common duct
law in June 2000, and made a variety of ways to promote the construction of common duct, which
has made great achievements, such as the administrative regulations, engineering technology and

401
coordination during the time of development in Taiwan. The construction of common duct in
Taiwan has experienced three stages, as shown in figure 1[2].

Staring stage Exploration stage Perfecting stage

first stage Taiwan brought in second stage Using a variety of ways Setting supervision
third stage
common duct from vigorously promotes the mechanism improves
Japan and started development of common the development of
construction. duct. common duct further.

before 1991 1991 - 2003

2003 - present

Figure 1. Three stages of common duct development in Taiwan.

The First Stage (before 1991): Starting Stage

Affected by Japan in early 1970s, Taiwan has produced the idea of constructing common duct,
due to various conditions which had not yet been mature, the construction of common duct failed to
make substantial progress. Until 1989, in the early construction of the Taipei MRT, the problems of
digging the livelihood of the people such as telecommunications, gas pipeline and traffic jams had
appeared, which caused the general discontent. To solve this problem, the mayor of Taipei led the
delegation to visit Japan, they were affected by the concept of common ditch-once and for all from
digging up roads and brought the idea of constructing common duct back to Taiwan that is why
common duct began development in Taiwan.
On July 17, 1990, Taipei government in works of new industry sets common duct department,
which was officially approved on February 15, 1991, that is the first dedicated institution about
common duct in Taiwan. At the same time, Construction and Planning Agency started formulating
relevant legal provisions, and Kaohsiung government also established pipeline department to
comply with relevant business of common duct, which marks the common duct into a new era in
Taiwan.
The Second Stage (1991-2003): Exploration Stage
Taipei government set up Nt$2.5 billion as common duct fund to promote common duct
engineering in July 1991, then the interior ministry also raised Nt$2.5 billion as common duct fund
to provide loans and cyclic utilization for all levels of government and common duct department.
At the same period, the related laws and regulations that were formulated and modified gradually
started involving common duct. For example, Taipei increased the provision of common duct in the
Taipei urban road management rules in 1993, in order to make the construction of common duct be
based on the laws and regulations. On June 14, 2000, the interior ministry enacted the common duct
law, then the common duct implementation rules and other relevant laws were published.
Taiwan announced the announcement of common duct network for the first time in 2000. Now,
Taipei, New Taipei, Taichung, Tainan, Kaohsiung, Keelung, Hsinchu and Chiayi, a total of eight
cities, have completed the overall planning and established systematic planning of common duct.
In addition, Taiwans government established public facilities pipeline database grouping to
make related policy and system of pipeline database in 1990. Making all kinds of line standard
system and public facilities planning, will integrate all kings of pipeline information of Taiwan and
establish public facilities pipeline database, for all kinds of pipeline unit query.
The Third Stage (2003-present): Perfecting Stage
In 2000, the interior ministry enacted the common duct law, also, the implementing rules and
related method of the common duct law developed during the next two years. As of May 2003, the
implementation of the common duct engineering design standard showed that the central level of
the regulation system in Taiwan had been completed, which marked that the common duct was
entirely based in Taiwan.

402
 On April 22, 2010, the interior ministry promulgated the interior supervision about the
government of municipalities and countries promoting the common duct project, which was to
promote construction of common duct and understand the construction state of common duct.
Between May and July each year, Construction and Planning Agency shall invite 5~7 persons to
supervise the previous years results, including Directorate General of Budget, Accounting and
Statistics, Council for Economic Planning and Development(CEPD) and specialists and scholars,
and understand problems in the course of construction. The supervision team shall respectively
check each project, hoping give positive guidance in promoting the construction of common duct at
all levels of government through using the monitoring system for assessment.

The Development Achievements of Common Duct in Taiwan

Construction Achievements
As shown in table 1, that is the construction status of common duct in Taiwan as of April 2015.
The accumulative length of construction completed is 392.818 km; all the planning length of
construction will reach 908.181km. Seen from the distribution, the construction of common duct is
mainly concentrated in the densely populated and economically developed cities, such as Taipei,
New Taipei, Taichung and Kaohsiung [3].
Table 1. The construction state of common duct in Taiwan.

Project Completed Instruction Design Total

Main(km) 53.344 13.292 9.560 76.196

Branch(km) 61.660 109.302 16.380 187.342

Raceway(km) 47.249 13.337 0.000 60.586

Cable line(km) 230.565 279.626 73.866 584.057

Total(km) 392.818 415.557 99.806 908.181

Legal System
Since the 1990s, various local governments have vigorously promoted the construction of
common duct after the concept of common duct introduced. In order to facilitate planning and
implementation of common duct, solve various problems in the construction, legislation became the
inevitable demand at that time. The interior ministry promulgated the common duct law in 2000 as
a turning point, which indicated that legislative work of common duct had entered the rapid
development of new stage. Then the related laws of the common duct law developed, these laws
and regulations systematically made a specification about the planning, construction, operation,
funding and other issues of common duct, which indicated that a common duct legal system had
been established. After that, the local governments started formulating laws and regulations at the
local level, making laws and regulations system of common duct continuously detailed at the local
level [4].
System Planning
The common duct prescribes that the competent authority shall consult with the pipeline business
organs at all levels to plan common duct system within their respective jurisdictions. The system
planning of common duct is gradually completed by country in Taiwan, combining with the
development and utilization of urban underground space at the same time and constructing with the
MRT and underground railway engineering. Now, 8 counties and cities have completed the overall
planning. At the same time, the laws and regulations prescribe that the completion of common duct
system planning shall be announced after approved by the interior ministry, and the system shall be

403
thoroughly reviewed every three to five years after announced. Also, the planning shall be reviewed
from time to time in order to cope with national important policies or the implementation of major
projects.
Public Pipeline Database
In 1992, Construction and Planning Agency called to establish prophase planning study of public
pipeline database. They would gradually build public pipeline database in various counties by
making public pipeline database system of overall planning and all kinds of line standard data
interchange formats and exchange and building all kinds of pipeline testing platform. There are 8
counties and cities have established pipeline database by 2014, other counties will continually
promote the construction plan. After the whole pipeline database is completed in Taiwan, its
achievement and benefit will appear. The database will provide better information of disaster
prevention and mitigation, engineering design and business management, which can provide the
basis for planning and construction of common duct and greatly promote the development of
common duct.

The Construction Status and Existing Problems of Utility Tunnel

Development Course
China built the first utility tunnel under Tiananmen Square in 1958, then built the same cross
section of utility tunnel when chairman Mao memorial hall was built. However, the construction of
utility tunnel in the true sense began in Zhang Yang road in 1994, which has been more than 20
years of history so far, and the utility tunnel had not been valued and large-scale development [5].
Along with the accelerating urbanization, city problem appeared continuously, utility tunnel as an
intensification of the municipal infrastructure can effectively solve these problems. In the past two
years, utility tunnel walks into public view, the construction of utility tunnel starts booming in the
country. In April 2015, the ministry of finance and ministry of housing and urban-rural confirmed
Baotou and other 9 cities as pilot cities of utility tunnel and planned to build 398 km utility tunnel
underground in 3 years, with a total investment of 35.1billion Yuan. According to statistics, there
are 69 cities building utility tunnel in China, which reach 1000km and the total investment of 88
billion Yuan [6].
Existing Problems
a. Source of Fund Mainly Raised by Government Investment is Single
Utility tunnel has many advantages and can make a significant benefit, but its prophase
construction investment is higher than the traditional pipeline directly buried underground and it
also requires high operation and maintenance cost, which make it hard to take part in investment for
the social capital. The money of constructing utility tunnel in China is essentially raised by a variety
of government financial means, which has an important role in supporting for the development of
utility tunnel. However, as the construction of utility tunnel and operation scale constantly
expanding around the country, the huge construction investment with no money paid will make the
single mode of government financial supporting more and more unsustainable. The stable source of
funding will become the key to develop utility tunnel on a large scale [7].
b. There is Lack of Corresponding Legal Security System
The construction and management of utility tunnel must be carried out by the law. At present,
China has not legislated for utility tunnel, only relying on the relevant policy guidance and technical
specification. The behavior originally regulated by law is carried out by administrative means,
which makes the enforcement and is difficult to achieve the desired effect. In recent years, the
central government is also constantly exploring and has established the specification of the national
level. And the laws and regulations of construction, operation and management of utility tunnel
should be established as soon as possible.
c. Pipeline Units are Influenced by Traditional Concept of Directly Buried Pipeline

404
 The construction of utility tunnel is to break the traditional model that pipeline unit is individual
to establish a new mechanism of coordination and management. Its a big difficulty to change the
past management system and idea and make each pipeline unit follow the same construction
specification. In addition, the construction investment of utility tunnel in the early stage is much
higher than the traditional buried cost; pipeline unit is reluctant to participate in constructing utility
tunnel for the immediate interests.
d. Unified Cost-sharing Mechanism has not been Established
The relationships between different types of pipeline lying in the utility tunnel are mainly
manifested in the distribution of the limited space. According to the space factor that pipeline takes
up and income factor, we can share construction cost of utility tunnel to ensure a stable income
latterly and sustainable construction of utility tunnel. Different pipeline units have responsibility to
pay for use and operation maintenance when they enter into utility tunnel. But there has not
established unified cost-sharing mechanism in China, which leads to the lack of basis in the
operation of the actual cost allocation and makes the cost of utility tunnel recovery be a problem
[8].

Enlightenments to the Construction of Utility Tunnel

Establishing Regional Network System as a Whole
Utility tunnel as a comprehensive project is about the peoples livelihood, involves numerous
units and complex construction, which cannot be easily changed once completed. So it should be
planned by considering the urban development at present and in future before constructed. China
should draw lessons from Taiwan to establish a system of network about utility tunnel in various
counties or provinces, which can reasonably use underground space, combine with the city planning
in the region, and build with the construction of the urban subway and underground space
development. At last, it should build up the whole area of planning system of utility tunnel, which is
constantly being revised as urban development.
Establishing Laws and Regulations System
Laws and regulations as the basic constraint behavior standard, is the key to promote the
development of utility tunnel. There is no special legislation in the construction of utility tunnel in
our country, mainly relying on the governments administrative means to dominate, which will be
discounted. China should draw lessons from Taiwan and other regions about laws and regulations
system and combine with the experience of the utility tunnel that has been built to establish
legislation from two aspects of technology and policy at the national level, which makes a basis on
constructing utility tunnel in all regions.
Setting up Specialized Department
Municipal pipeline accommodated in the utility tunnel was built by different competent
authorities that were no unified coordination mechanism. Constructing utility tunnel makes lines in
the same space, which requires coordination between various pipeline units before starting
planning. Constructing utility tunnel involves many units, which must have a unified organization
of the department be in charge at this time. At the beginning of the construction of common duct,
Taiwan established common duct department in Taipei, then established in Kaohsiung, which is
responsible for the construction of utility tunnel. China should change the present management
system that various pipeline units are responsible for their construction, and establish the competent
authorities of utility tunnel from central to local, they are specifically responsible for the
coordination between various pipeline units and unified planning and construction.
Guaranteeing the Stable Source of Funding
Now, the construction of utility tunnel in China mainly relies on the government investment,
pipeline units rent or use it in free. Because the construction of utility tunnel requires a lot of
money, the government cannot afford when built in a large scale. To explore diversified financing
405
model is the precondition for the development of utility tunnel. Taiwan raises money by
establishing common duct funds, and the government joints investment with the pipeline units to
ensure the sustainable development. China should adopt diversified investment and financing mode,
such as setting up funds, bringing in social capital, issuing bonds, etc., to ensure a stable source of
funding in construction of utility tunnel.
Establishing Information System Platform of Utility Tunnel
Pipeline data is respectively kept by each unit and doesnt make public because the units of each
line have their own authority, which will hinder the coordination between the various units and be
not conducive to planning and construction of utility tunnel. China should take advantage of
modern information technology to establish information database of underground space
development and utilization to provide information for each unit. Information system platform of
utility tunnel can be established on the basis of underground space utilization and pipeline
construction to realize the intelligent management of underground utility tunnel.

Conclusion
Utility tunnel, as urban infrastructure service product, plays an important role to the development
of the whole city and residents daily life. Strongly constructing utility tunnel in city, can improve
the urban environment, save urban land, and avoid affecting traffic and peoples life when the
pipeline is constructed and maintenance in a traditional mode, which is the important measure to
realize urban sustainable development. In the past two years, the country has vigorously promoted
construction of utility tunnel; the region should take this opportunity to promote the development of
utility tunnel. Aiming at the problems existing in the construction of utility tunnel, we should sum
up experiences of development at home and abroad and combine with domestic pilot project
construction to explore the construction of utility tunnel in law, financing, operation, maintenance
and cost allocation. At last, we should establish perfect development pattern and improve the
management level of utility tunnel on the basis of the level of urban development in our country.

References
[1] Qi-hu Qian, Xiao-qiang Chen, Situation, problems and countermeasures of utility tunnel
development in China and abroad, J. Chinese Journal of Underground Space and Engineering.
02(2007)191-194.
[2] Fwu-Shium Liou, Wen-kuei Hsiao, Lung-sheng Chuang, A study on the promotion of common
utility ducts in Taiwan, J. Chung Hua Journal of Architecture. 01(2005) 25-34.
[3] Jun-Jie Zeng, The development and operating conditions of common duct in Taipei, C.
Seminar of Common Duct in 2015, Taipei.
[4] Jiang-Bo Wang, Shen-Zhi Dai, Ai-Ping Gou, Research on legal system of common ducts plan
and construction in Taiwan region of China, J. Urban Planning International. 01 (2011)87-94.
[5] Wei-Hong Shi, The research of Urban Municipal tunnel development and applications, J.
Chinese & Overseas Architecture. 12(2015)103-106.
[6] Chen-Long Yu, Zuo-Hui Zhang, The development and present situation of urban underground
utility tunnel at home and abroad, J. Construction Science and Technology. 17(2015)49-51.
[7] Yu-Ting Qiu, Investment and financing model analysis for utility tunnel project in Chinese
City, D. Tongji University, Shanghai, 2008.
[8] Ding Song, Shi-Qiang Zhao, Comparison and analysis of existing financing model of
integrated urban underground pipeline system in China, J. Value Engineering. 04(2014)93-94.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Research of Entrepreneurship Education Evaluation System of

Private Colleges
Qiu-Lian Zhu1,a,* , Xiang-Wei ZANG2,b, Hai-Yan WANG3,c, Ji-Xin LIU4,d,
Rui-Ying SHAO5,e, Xi-Yuan ZHAO6,f, Cheng-Long ZHANG7,g
1
Qingdao Huanghai College, China
a
45118761@qq.com, b282615529@qq.com, c541101645@qq.com, d25669057@qq.com,
e
93659949@qq.com,f1243841885@qq.com, g1935474697@qq.com
*Corresponding author

Keywords: Private Colleges; Entrepreneurship Education; Teaching Evaluation System;

Abstract: Entrepreneurship teaching evaluation system constantly promotes the upgrading of

university teaching quality in private enterprise education through actively promote the learn
autonomy of students, the work enthusiasm of teachers and the management efficiency of teaching.
Therefore, in the process of constructing the teaching evaluation system, the teaching managers of
private higher education should clarify the ideas and emphasis of index selection, explore the
appropriate construction way to further display the function and the role of entrepreneurship
education teaching evaluation system.
High education serves the community development, social development is inseparable from the
support of education, what kind of social and economic development needs, there will be what kind
of education mode. Thus, today with the globalization of economic and the internationalization of
education, the development of the entrepreneurship education has become the main content of high
education, the quality of entrepreneurship education development determines the development level
of higher education, in order to better promote the development of entrepreneurship education,
universities and related departments should construct and improve the entrepreneurship education
teaching evaluation system to promote the development and reform of university entrepreneurship
education. Private Colleges with its own characteristics, should avoid weaknesses and make a
special feature on student innovation and entrepreneurship culture to open up a new journey.

The Significance of Constructing the Entrepreneurship Education Evaluation System

Help Students Increase Learning Autonomy
Student is one of the main bodies of entrepreneurship education teaching evaluation, through
students feedback and suggestions for teaching can help teachers better understand the needs of
students, and contribute to more effective communication between teachers and students to promote
learner autonomy enhanced. Firstly, in the construct of teaching evaluation system, students should
recognize their own subjective position in the teaching process, so as to realize the importance and
responsibility of their own learning, through self-evaluation and communication with teachers,
students can more clear their own learning objective, thus increase the initiative and enthusiasm.
Secondly, through setting teaching goal of the teaching evaluation system can help students more
clear the general requirements between the individual and schools, establish learning awareness
through rational thinking, search for their own learning. Finally, teaching evaluation system can be
used effectively to identify the value of learning and learning outcomes, discover the learning
problems and make improvements by comparing learning at different stages.
Help Teachers Improve Teaching Quality
Constructing the teaching evaluation system can promote the continuous improvement of
teaching quality. Firstly, teaching is an interactive process of teaching and learning, teachers guide
students to learn, think, and grow through classroom teaching, the effect on one hand can be
407
reflected through inspect students and their practical ability, another important way is students
feedback for the teaching evaluation system. Teachers can better understand students needs by
teacher-student interaction mode, thus contributing teachers to improve teaching methods to achieve
better learning outcomes. Secondly, teachers can learn more personality traits of different students
by the evaluation system, it can help teachers teach students in accordance of their aptitude ,
ultimately each student to maximize the potential to better promote the improvement of teaching
quality . Finally, during the teaching evaluation system building process, teachers can know more
clearly about the courses objectives, process, method, etc., so as to better guide the work.
Help to Improve the Teaching Management Efficiency
The construction of teaching evaluation system is an important part of teaching management,
with the features to promote teachers complete the task successfully, and achieve the desired goal,
to help enhance the efficiency of teaching management. Firstly, the education evaluation system
affects teachers and students together to complete the task of teaching through its internal
regulation, to show the strength and validity of management of teaching evaluation system.
Secondly, through teaching evaluation, students quantifies all indicators of the teaching process to
determine the fit of the teaching methods and to adjust the teaching method for seeking the best
teaching effect according to the needs of students and teachers and teaching resources. Finally,
effective teaching evaluation can help evaluate the detection object and self-adjustment, and
promote teaching reform, and teachers teaching quality and management efficiency in large scale.

Difficulties of the Construction of Entrepreneurship Education Evaluation System

Invisible Index Dominance
The construction of universities entrepreneurship education system involves a series of indicators
from the invisible to the dominant, in the actual build, the dominant indicators are easy to measure,
while invisible index are easily overlooked. Evaluator is easily quantified such data like attendance,
students score, teacher-student interaction and so on by data, but other important indicators such as
teaching attitude, teachers inspiring effects, students can easily perceive, but they are ignored in the
construct of evaluation system for lack of standards which are hard to quantify. Therefore, the
builders should pay more account about how to invisible indexes explicit when setting indicators,
and to incorporate with the available quantitative methods to evaluate the whole system as much as
possible, and stimulate teaching Invisible and Indexes effect and action by the action of teaching
evaluation system, constantly improve teachers enthusiasm and work ethic.
The Ease and Effectiveness of Indicators
Firstly, in the construct of teaching evaluation system, system builders are difficult to choose for
many indicators, but if you choose too many indicators, it is not conducive to effect the function of
the system, therefore, the indicators which can really evaluate the teaching quality should be
selected. These indicators should work hard to motivate teachers to improve their teaching and
motivate students' innovative spirit. By building evaluation system to encourage students to
all-round development, percept life in practice, upgrade their skills, establish responsibility, and
then improve their overall competitiveness. Secondly, building evaluation system should comply
with the convenience and efficiency features, on one hand during the construction of the evaluation
system new problems and loopholes will emerge, so builders should have the ability to control the
system, to ensure its convenience of improvement and implementation, and reflect the true
situation, objectively and effectively as far as possible. On the other hand evaluation feedback
should ensure timely and smoothly, because evaluators and the objects evaluated are concerned
about the results after the evaluation, if the feedback is not timely, the motivation of the evaluation
body will be affected, and thus can not reach the desired effect. Therefore, the operability and
timely feedback are considerate elements during construction the system.
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Building Path of Entrepreneurship Education Teaching Evaluation System
Establish Teaching Evaluation Objectives Based on Cultivation of Entrepreneurial Ability
The goal of teaching evaluation is to promote the improvement of the quality of teaching
entrepreneurship, while the goal of the entrepreneurship education is to develop comprehensive
application-oriented talents, so the establishment of evaluation system should be based on the
cultivation of entrepreneurship ability. Firstly, setting evaluation target bases on entrepreneurship
theory. The cultivation of entrepreneurship ability is inseparable from the foundation of the theory
of entrepreneurship, only by grasping the profound entrepreneurial theoretical knowledge can
exercise a strong entrepreneurial capacity. In the evaluation system, the grasp of theoretical courses
should also be the measurement standard of teaching quality. Based on the massive foundation,
wide caliber, innovative spirit and practical ability, constantly improve students' comparative
advantages and comprehensive quality. Secondly, setting the evaluation objective based on the
practical ability. The meaning of theory is to promote practical ability, the practical ability is the
basis of establish themselves in society of college students, and the support of their future survival
and development, the altitude of practical ability can accurately reflect the pros and cons of
students learning . Practice indicators should focus on the draw on students perception practice,
participation practice and independence practice, to achieve the sublimation of self-innovation
ability through observation, imitate, participation and cooperation. Finally, the effective
complement of teaching evaluation index based on extracurricular development. The result of
students learning not only reflect on the context of the curriculum, but also be further investigated
from their social skills, universities should provide opportunities to encourage students to
participate in social activities, such as volunteer social service, school entrepreneurship competition,
students participate in entrepreneurial activities, students simulate practices and so on, on the one
hand to enhance the students' communication skills and ability to adapt, on the other hand let them
know the society in advance, make adequately prepare in order to better integrate into the
community .
Setting Teaching Evaluation Body Centered on the Enhance of Teaching Quality
Construction of entrepreneurship education teaching evaluation system should avoid the oneness
of evaluation index, because the teaching process have to cover many aspects such as school
management, teacher teaching, student participation , corporate support, government policy and
other aspects, therefore the subject and object should be comprehensive, objective, systematic.
Firstly, the evaluation should integrate many recommendations, the evaluation of the main level
must be clear, the management of the subject, the implementation of the subject and the protection
of the subject should clearly devise the power and responsibility. Secondly, the evaluation should
include at least two levels: one is to build a self-assessment process, including management mode,
management responsibilities, the ability of teachers, teaching methods, student engagement, etc.
The purpose of self-assessment is to make the subject more clear understanding of their respective
responsibility and mission, to promote the upgrade of their motivation to work and learn. Another is
outside evaluations, including education authorities and social related units, and the evaluation of
third party systems. Since there is no conflicting interests of outside, they are more objective and
impartial in the evaluation, so as to effectively correct self-assessment subjectivity. Finally,
guarantee the integrity of the evaluation. Teaching evaluation should be the whole process, from the
selection of evaluation index to the post-evaluation feedback related to the subject of work and
study improvements and enhancements, the evaluation value should be highlighted, in order to
ensure the complete of teaching system and the enhance of teaching quality.
Choose evaluation method based on promote the comprehensive development of people
College entrepreneurship education teaching evaluation pay more attention to its operability, so
we should considerate the select evaluation method comprehensively. Firstly, the combination of
qualitative and quantitative. Since some evaluation are dominant, while others are invisible, so
different evaluation index should select different evaluation methods in order to achieve an
409
objective, impartial results. On the same time, depending on the different evaluation object, we
should select appropriate evaluation methods. Secondly, focus on the sustainability of evaluation
methods. In the whole teaching evaluation system construction, the builders should consider the
long-term effect of the evaluation methods deeply concern the actual influence from the evaluation
methods, the evaluation to entrepreneurship education should establish its influence to society and
the development features of evaluation, they should establish the value of based on reality, focus on
the future, so as to promote the supervise sustainability. Finally, the evaluation should be specific,
directional. Evaluation of teachers should reflect the selection of teaching content, the effect of
teaching methods, the extent of interaction between teachers and students, the respond of teachers to
students feedback, in order to promote the work of teachers more detailed. Evaluation of students
should reflect the requirement to student entrepreneurship development which is students 'mastery
of theoretical knowledge, practical participation, innovation development and so on, in order to
promote students' awareness and autonomy. Evaluation of managers should focus on their
management attitude, management capacity and the emphasis on systems development process, so
as to promote their work efficiency.
Use the Effectiveness of Entrepreneurship to Measure Education Teaching Evaluation System
The construction of teaching evaluation system, its ultimate purpose is to promote the
effectiveness of entrepreneurship education in higher education development and reform, therefore,
measure whether a teaching evaluation system plays a role, the key is how much it influence the
entrepreneurship education. Firstly, promote the cultivation of entrepreneurship education to
students pioneering spirit. Entrepreneurship needs innovation, the ability of innovation is the
inexhaustible source of entrepreneur to growth and development, which is an important indicator to
measure the effectiveness of entrepreneurship education. If the evaluation system can promote the
cultivation of education students' innovative ability during the development of entrepreneurship
education, then its meaning is positive, the system is constructed successfully. Secondly, promote
the growth of student self-consciousness. During the evaluation, by self-and other-assessment,
students can further understand their own strengths and weaknesses, and realize the importance of
promotion from constantly self-reflection, which is the burgeoning of self-awareness, the real
education is ultimately let students themselves grasp the direction of life, constantly thinking and
exercise in self-awareness, and thus be able to grow in self-thinking and capabilities. Finally, the
establish of students self-confidence. Today the tide of social entrepreneurship constantly rising,
and with the development lever of the Internet makes the entrepreneurs having international
characteristics, so the evaluation system plays an active role for students in developing an
international perspective.
In short, the construct of entrepreneurship education teaching evaluation system should consider
the development needs of each subject adequately, comprehensively measure the upgrade role of
system construct to entrepreneurship education quality, combining the characteristics of Private
University Development, concerning the joint between theoretical knowledge and practical ability,
attaching importance to students development of personal potential, coordinating students
personality characteristics with the overall teaching requirements, guaranteeing students
self-awareness and healthy growth, specifying the combination between teaching system objectives
and entrepreneurship education goals, in order to enhance the smooth implementation and upgrade
the quality of the Private University entrepreneurship Education .

References:
[1] Hang Guoying etc .Humanities Quality Education Evaluation System in College Construction
[J]. Higher Education Research, 2011 (7).
[2] Wang Yanhong, etc. to enhance the entrepreneurial capacity to build awareness of
entrepreneurship-oriented enterprise education system, China Adult Education, 2014 (8).

410
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Analysis on Energy Saving of Large Scale Public Building Economy

Taking Kaifeng City as an Example
Bo LIANG
Kaifeng University, Kaifeng City, Henan Province in China, 475000

195284025@qq.com

Keywords: Large scale public buildings; Building energy consumption; Improvement measures

Abstract. Today, in Chinese existing large public building energy conservation is facing severe
challenges, but also has great potential. In this paper, taking Kaifeng city as an example to survey
and analysis on energy consumption of large public buildings in China, and the proposed
modification proposal for reference.
According to the current trends, by 2020 China's annual energy consumption will reach 10.9 tons
of standard coal, equivalent to about 29 430 billion kwh of electricity, it is more than 34 times the
total annual power generation of Three Gorges power station. Among them, the existing large-scale
public buildings consume 22% of the total energy consumption, has become the "black hole" and
"giant", although their construction area of less than 4% of total urban construction. According to
statistics, the total construction area of large public buildings in China existing is 5 billion m2,
power consumption is 70 to 300kwh/ m2/year, excluding heating energy consumption equivalent to
power 900 billion kwh/year. Moreover, in the China the development speed of large-scale public
buildings is very fast, the annual increase is more than 50 million square meters, so the energy
consumption of large public buildings will become a major growth point in the future energy
consumption in many city. Therefore, in Chinese existing large public building energy conservation
is facing severe challenges, but also has great potential. Kaifeng as a rapid rise of the Central Plains
city, its current situation and characteristics of the energy consumption of large public buildings are
regional representative strongly.

Current Situation of Energy Consumption of Large Public Buildings in Kaifeng

During the period of 2008 to 2012,according to the survey about 27 enterprises in Kaifeng of
building energy consumption statistics, their total area of 884300 square meters, the average single
area of 32700 square meters, the average annual energy consumption per unit of 17.86kgce/m3.
Data processing formula:

E = ( k1u1 s + k 2 u2 + k3u3 + k 4u 4 + k5u5 + k6u6e1 + k7u7 e2 ) / s

E kgce/m 2 , unit area energy consumption

k1 = 0.1229kgce/degree
u1 deg ree / m 2 , power consumption per unit building area
s m 2 , total building area

411
 k 2 = 1.3300kgce/m 3 u 2 m 3 , annual consumption of natural gas
k3 = 971.4kgce/t u3 t , annual consumption of coke
k 4 = 714.3kgce/t u 4 t , annual consumption of coal
k5 = 127 kgce/t u5 t , annual steam consumption
k 6 = 0.8651kg/l e1 = 1.4571kgce/kg
u6 l , annual consumption of diesel engine
k 7 = 0.7502kg/l e 2 = 1.4714kgce/kg
u7 l , annual consumption of gasoline
According to the analysis of statistical data, we can draw a conclusion:
One, the type of energy consumption, at present Kaifeng has both the energy consumption of
large public buildings (100% buildings with varieties of power), natural gas (about 47% buildings
used), supplemented by other energy consumption;
Two, the type of cooling, the refrigeration system of central air conditioning based, supplemented
by the split air-conditioning. The number of central air conditioning and refrigeration of the existing
large-scale public buildings is 12, accounted for 71%, the number of split air conditioning and
refrigeration of the existing large-scale public buildings is 7, accounted for 41% (of which there are
two split / central refrigeration);among them the main body of air conditioning and refrigeration for
hospitals, schools, office buildings and other small bay structure buildings, large shopping malls,
hotels and high-grade office buildings with central air conditioning.
There, the type of heating, mainly by the air conditioning heating ,the number is 9, accounting for
about 53%,6 of them used central air conditioning heating buildings, accounting for about
35.3%.The other is the use of centralized heating means, the number is 8, accounting for about
47%.
Four, the overall energy consumption is too large. The energy consumption of large shopping
malls, hotels and high-grade office building is very large, far beyond the ordinary public buildings
such as schools and general office. With the 2009 statistical data as an example, the Kaifeng
Netcom Company, Zhongzhou International Hotel, a large business group in Kaifeng Sheng
shopping plaza, the unit power consumption were 114.5kwh/m2,128.2kwh/m2, 175.8 kwh/m2,and
the same time, Kaifeng senior middle school, JingMing primary school, the unit power
consumption was 13 kwh/m2, 19.7 kwh/m2.From the building energy consumption per unit area,
large shopping malls, hotels and high-grade office building energy consumption is also far more
than the ordinary school and office building, such as the new century Le Grand Large Hotel, the
annual energy consumption per unit area has been in the 40kgce/m2, is nearly 2 times of similar
buildings(such as the Zhongzhou International Hotel) in general, is as 5~20 times of large scale
public buildings, since the development of building energy consumption in Kaifeng city statistics.
Five, energy consumption is growing like a black hole. In recent years, with the rapid economic
development of Kaifeng, large public buildings was springing up like bamboo shoots after a spring
rain, such as Sheng shopping plaza, New Mart shopping plaza, Century Square etc..The new
shopping mall, while objectively pushed up Kaifeng's economic boom once again, but also
exacerbated the existing large-scale public building energy consumption in Kaifeng, pushing the
average value.

Implementation Proposal
The reconstruction project of building energy saving in our country mostly adopts the
transformation of outside wall window and roof model. Commonly, outside wall is used of EPS
polystyrene board, XPS board or rock wool board to do heat preservation layer; outside the window
is mainly used to replace the Low-E plastic hollow form, tempered glass or posted insulation film;
the roof is mainly used EPS polystyrene board, XPS board as heat preservation layer and the above
of water proof layer. Energy saving roof is also used for roof greening, roof surface coating layer,
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light colored roof sunshade, ventilation roof, roof evaporation and so on. With the work of building
energy saving in our city step by step, Kaifeng building energy saving technology has been
basically mature, energy-saving effect is remarkable day by day. For the energy saving renovation
of large public buildings in Kaifeng, suggest the envelope energy saving and indoor air conditioning
system control and temperature control transformation.
First, Energy Saving Outside Wall
Recommend the use of EPS or XPS polystyrene board, polystyrene board as the main material of
external wall insulation system. Because of the difference of the fire performance and regional, their
price is about 350-1000,currently the site of the general in 400 (below B2 grade fire proof
performance).Recommend the use of more than 500 m3, not lower than B2 grade fireproof grade
polystyrene board. Polystyrene board exterior wall insulation system originated in the forty's of the
last century in Europe, has a history of over 60 years. After many years of practical application and
in different climate condition for a long time test, proved that the type of external wall insulation
system construction, from the outside of the building decoration effect and the comfort of the living
are to provide people with good living conditions, is a worthy of popularization and application in
the global scope of the new energy saving technology.
Second, Energy Saving Roof
Suggests that the energy-saving roof can adopt insulation board (EPS or XPS) with waterproof
coiled material model. In the past, most of residential building adopts the levels of anti roll roofing
at Kaifeng city. Over the years, practice has proved that: the waterproof layer of low service life,
poor durability, waterproof is more difficult, and more energy. Technical measures of energy saving
roof can be used are: green roof, roof surface coating layer, light colored roof sunshade, ventilation
and restorative roof etc..
Third, Energy Saving Reconstruction of External Window
Recommended replacement for steel Low-E hollow window, the price of about 350-450 per
square meter. The data show that: the heat loss of the window is 5 ~ 6 times of the wall, accounts
about 40% of total building energy consumption. The main reasons: first is too large windows itself
thermal conductivity; second is that cold air infiltration is very serious through the windows. The
doors and windows of the building is the weakest part of the building thermal insulation
performance, directly affect the effect of energy saving of building. So improving the thermal
insulation performance and air tightness is the main way to ensure low energy consumption of
buildings. Energy saving windows not only can reduce the body heat radiation, noise and has good
dust proof effect, but also can improve the indoor comfort.
Forth, Reform of Air Conditioning System
Suggestions on the air conditioning system in accordance with the transformation of the body
control and sub room temperature control. The split control and overall control combination, to
ensure all buildings equipment design flow and meet specific cooling or heating comfort
requirements; and according to the need to adjust the load of air conditioning system, in order to
achieve the most effective energy conservation effect. According to the calculation, increasing the
terminal regulation means can make the heating energy consumption reduced by 20% ~ 30%, and
improve the heating conditions, to meet the different levels of demand.

Project Economic Evaluation

The following will be the Kaifeng Netcom as energy-saving as the object, proposed
transformation plan, the economic evaluation.
(1) the outside window, using 10mm+12mm+10mm Low-E hollow steel window, the area of
about1 418m2, according to 470 per square meter is calculated as follows:
1 418m2* 470/m2= 666 460
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 (2) The glass curtain wall. By using the method of affixed to glass insulation film (life is
generally 25 to 30 years), the market performance of the Johnson products for example (SB20
insulation materials and construction rate of 83%), the total cost of 220 per square meter or so, the
area is about 3775m2, calculated as follows:
3 775m2*220/m2=830 500
(3) The outer wall. Using 100 EPS thick molding polystyrene board insulation layer, material and
construction cost a total of about 165 per square meter , the area of about 4 810m2, calculated as
follows:
4 810m2*165/m2=793 650
(4) Roof, with dry 80mm extruded polystyrene board insulation layer and the XPS shop to do
SBS waterproof layer for energy saving, material and construction cost a total of about 200 per
square meter, the area of about 1300m2, calculated as follows:
1 300m2 * 200 /m2=260 000
Based on the analysis, the total estimated investment scheme:
666 460 +830 500 +793 650 +260 000 =2 550 610
According to the statistical data in recent years of Kaifeng Netcom Company, the annual
electricity consumption of 127.5 kwh/m2,construction area of 27 912m2, in the city of Kaifeng non
residential electricity 0.761/kwh, assuming the energy consumption of the unit air conditioning
system (cooling and heating) accounted for about 50% of total energy consumption of energy use,
this energy conservation plan rate after the transformation is about 50%, net income(R) of the
annual energy saving is obtained:
R=50% * 50% * 127.5 kwh/m2* 27 912 m2* 0.761/kwh=677 058
The static investment payback period (T):
T=2 550 610/ 677 058=3.78 < 10 years
So, this project is feasible.

Acknowledgment
This research was financially supported by the Scientific research projects in Universities of Henan
Province, NO: 15B630009 and the Science and technology project of Henan Province, NO:
152400410023.

Reference
[1] Hezhiheng. Analysis of Xi'an City shopping malls in the energy consumption status and energy
saving [D]. Xi'an: Xi'an University of Architecture and Technology, 2009.
[2] RaoLan, WuYali. China's existing large-scale public building energy saving reconstruction
research (J), resources and environment, 2011, (6).

414
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Relationship between Competency and

Job Qualification
Yong WANG1,a, Jun MA2,b,*, Hui REN3,c
1,2,3 th
6 Floor, Building B, Desheng International Center, No. 83 Dewai Street,
Xicheng District,Beijing,100088,P.R.China
a
wangyong@8610hr.cn, bmajun@8610hr.cn, crenhui@8610hr.cn
*Corresponding author

Keywords: Competency, Job Qualification, Relationship.

Abstract. This paper analyzes the concepts of competency and job qualification, compares their
differences in two aspects of development and evaluation application and discusses two forms of
their combined applications in the enterprise practice, one is job qualification containing
competency, the other is competency containing job qualification.

Problem Introduction
Competency and job qualification are the foundation of human resource management, but their
"difficult landing" and "poor adaptability" is a general problem in the practice of the enterprise. One
reason is that the enterprise has insufficient understanding of job qualification and competency,
confuses the competency standards with the job qualification standards and mistakes competency
for the main criterion of personnel recruitment and selection, and job qualification for the sole basis
of training and assessment. Therefore, it is of great significance to correctly understand their
relationship, so as to play their role of cornerstone well.

The Comparison of the Concepts of Competency and Job Qualification

Scholars have conducted in-depth researches on the concept of competency. McClelland (1973)
believed that more important factors affecting employee performance, in addition to personal
knowledge and skills, were inner deep characteristics such as personality traits, motivation and
values [1]. Spencer et al. (1994) believed that competency was the deep characteristic possessed by
the individual and having cause-and-effect relationship with high performance [2]. Zhong Lifeng,
and Shi Kan (2003) believed that competency was the behavioral characteristic which can be used
to distinguish excellent performers from average performers, and these characteristics were the
potential and lasting characteristics of individuals, which can be cognitive, attitudinal, tendentious
and so on [3].
Job qualification is the combination of knowledge, experience, skills and behaviors which must
be possessed by job holders in the specific positions. It is a proof of the staffs working ability in a
particular field. Job qualification emphasizes on whether job holders are able to meet the
requirements of the job or not. Only those who meet the requirements of the job are qualified and
those who do not meet the requirements of the job are not suitable for the post and should be
replaced, or continue to learn to meet the requirements of the job[4].
Thus, the concepts of competency and job qualification have different emphases, which can be
analyzed in four aspects: the object of concern, the level of attention, the scope of application and
the main content (refer with: Table 1). Competency is the individual potential characteristic, which
is linked to the high performance, can be used to distinguish excellent performers from qualified
performers, and is closely related to job performance. It is focused on high performers and includes
motivation, personality, attitude and values, while job qualification is focused on qualified
performers, emphasizing the basic requirements to job holders.

415
 Table 1. Comparison of the Concepts of Competency and Job Qualification.
Content Competency Job Qualification
Object of concern Excellent staff Qualified staff
Level of attention The inner deep characteristic The shallow level quality
Scope of application The core position and talent Covering the entire position system
Motivation, character, ability, Knowledge, skills, experience,
Main content
personality, etc. behavior, etc.

Differences in Competency and Job Qualification

Differences in Development
The construction of competency model is focused on the common core personality traits of
excellent job holders in the specific positions, emphasizing the individual potential qualities
including self-cognition, internal drive and activity motivation. People are the focus to be analyzed
in the process of constructing competency model. Meanwhile, the construction of competency
model usually starts from the organization's strategy, values and core competitiveness to reflect the
future needs of the organization.
Job qualification is obtained through job analysis, based on the reality, collecting information
from bottom to top, analyzing the requirements to job holders systematically and providing detailed
information that is measurable and comparable to make a match between positions and personnel
[5].During the development of job qualification, the research object is the characteristic and
requirement of the job, analyzing the required ability to complete the job.
Competency can be divided into three categories, general quality, transferable quality and
professional quality [6]. General quality reflects the company's strategy and core values, which is
applicable to all the staff in the organization and is the basic requirement to the staff. Transferable
quality is the quality required in multiple roles, varied according to the degree of significance and
proficiency of the position, usually including leadership and management. Professional quality is
the special quality required in a particular role or job, such as the expertise in human resource,
finance, production, marketing and other professional qualities. The classification of job
qualification is based on the job management system of the enterprise. Different job qualifications
are required in different post levels and post classifications.
Differences in Evaluation Application
Competency is the potential quality of excellent performers in specific positions, which is neither
good nor bad, only suitable for the position or not. The matching degree between the quality of job
holders and competency model is usually obtained from the psychological test. In human resource
management, it is most widely used for talent recruitment, selection and performance evaluation
and it can also be applied in the middle and senior management training.
Qualification evaluation is the core of job qualification management system. It uses a variety of
assessment methods to overall assess the staff's knowledge, skills, education, experience and
performance, compares the evaluation results with the qualification criteria of the type of the post
where the staff is in and determines the roles of the staff according to the evaluation results.
Qualifications are the basic elements in job qualification management system, concentrating on the
basic quality of the position. They are the essential requirements of the post, the "threshold"
standard of talent selection and recruitment, and provide specific guidance for staff training,
including the induction training for new employees and the job-transfer training and promotion
training. In addition, it can provide direction for staff career development and provide the basis for
salary grade evaluation.

The Connection between Competency and Job Qualification

Applications of competency and job qualification are both aimed at improving the adaptability
416
between person and post and improving the effectiveness of human resource management and
development. In the corresponding human resource management mode, they both play a
fundamental role. The development of competency is based on qualifications, generating from the
work analysis. Moreover the difference between excellent performers and qualified performers is
also measured by the standards of qualifications. In the enterprise practice, they have two
combination forms, one is job qualification containing competency, the other is competency
containing job qualification.
Job Qualification Containing Competency
In this mode, competency model is included in job qualification. In addition to basic knowledge,
experience, skills, education, job qualification also contains values, personality, traits and other
invisible characteristics of the iceberg model. The scope of the elements in job qualification is
more extensive than competency model.
Huawei is the earliest enterprise to introduce job qualification management system and
competency model. It brings competency model into job qualification management system. Job
description contains both required qualifications and competency of job holders. In this way it can
not only make up for defects of competency model itself, but also make competency model and
human resource management system work closely through job qualification management system, so
as to make competency model and job qualification become useful management tools of human
resource management and development[4]. It is worth noting that the key reason for the successful
adoption of competency model in Huawei is that they make detailed grade of the quality in
competency model and the quality of each grade can be evaluated according to the grading
standards. By this way, the staff is very clear about the level of their own quality. What quality and
which level of quality a position requires can be linked up with job qualification. As shown in figure
1, job qualification standards include three parts: namely basic conditions, core standards and
references. Competency model is included in the column of job qualification of the post
specification. Which level of quality the position requires is clearly reflected and connection of
competency and job qualification becomes realized.

Present position

Basic conditions Professional experience

Performance

Necessary knowledge

Job Behavior
qualification Core standards
Skill
standards
Competency

Moral character
References
Personal characteristics

Figure 1. Elements of Huawei's job qualification standards.

Competency Containing Job Qualification

In this mode, job qualification is included in competency. Zhao Shuming et al. (2007) built
417
human resource management system based on competency model. They divided competency into
three levels: necessary competency, differentiation competency and strategy competency.
Necessary competency refers to knowledge and skills employees must have in the organization.
Differentiation competency is personality traits and motivation that excellent performers possess.
Strategy competency is closely linked to the organizations core values [7]. It can be seen from the
concept of the necessary competency that necessary competency is the job qualification of each
position and job qualification is a level of competency.
Li Du et al. (2012) summarized the construction of competency model of China National
Petroleum Corporation (CNPC)s overseas oil and gas business talent [8]. It is divided into five
dimensions, namely political quality dimension, professional ability dimension, foreign language
level dimension, environmental adaptability dimension and physical and mental status dimension
(refer with: Fig. 2).

Political and ideological quality,

Political quality professional qualification, professional
ethics, professional reputation

Professional ability Knowledge, skills, experience and

other professional skills

Competency Foreign language level Proficiency in one language of English,

model Spanish, French or Russian

Environmental adaptability Personality traits, eating habits,

hobbies

Physical and mental status Psychological quality, physical quality

Note: according to Li Du et al (2012) drawing

Figure 2. Competency model structure of CNPCs overseas oil and gas business talent.

In the five dimensions of competency model, professional qualification in the political quality
dimension refers to professional background, professional experience and professional certificate.
Professional ability refers to the employee's professional skills, including three elements of
knowledge, skills and experience, focusing on the employees practical working ability. Foreign
language level requires employees to be proficient in using at least one of four foreign languages.
Employees without this ability will be one-vote veto. Professional qualification, professional ability
and foreign language level are basic conditions that staff in this position must have, belonging to the
category of job qualification.

Conclusion
The explicit identification of the relationship between competency and job qualification is the

418
prerequisite to play their basic role effectively. Competency focuses on high performance while job
qualification focuses on qualified performance. There are great differences in their development and
evaluation application. But at the same time, there is a strong connection between them. Based on
different enterprise practices, job qualification may contain competency and competency can also
contain job qualification. Only reasonably use competency and job qualification can we establish
and perfect evaluation system, promotion system and development system of human resource.

Literature References
[1] McClelland, David C., Testing for Competence rather than for Intelligence. American
Psychologist, 28(1973)1-14.
[2] Spencer, L. M., McClelland, D. C., Spencer, S., Competency Assessment Methods: History
and State of the Art, Boston: Hay- McBer Research Press, 1994:22-29.
[3] Zhong Lifeng, Shi Kan, Advances in the Study of Competency, Nankai Management Critics,
2(2003)4-8.
[4] Wu Chunbo, Huawei's Competency Model and Job Qualification Management System, Human
Resources Development of China, 8(2010)60-64.
[5] Li Wendong, Shi Kan, Advances in Job Analysis Studies, Advances in Psychological Science,
3(2006)418-425.
[6] Zhong Su, Du Bingzhi, Research on Competency Model Based on enterprise culture, Modern
Management Science, 4(2010)112-114.
[7] Zhao Shuming, Du Juan, A Study of Human Resource Management Based on Competency
Model, Economic Management Journal, 6(2007)16-22.
[8] Li Du, Liu Yujuan, Cao Lihua, Wang Pengcheng, Analysis of the Construction of the
Competency Model of CNPCs Overseas Oil and Gas Business Talent, Petroleum Education,
6(2012)5-7.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Cultivation of Students' Professional Quality in Application

Oriented Universities
Xiang-Wei ZANG1,a,*, Qiu-Lian ZHUb, Yuan-Yuan XUc, Hua LIUd,
Bao-Qiang HUe
1
Qingdao Huanghai College, China
a
282615529@qq.com, b45118761@qq.com, c2678780687@qq.com, d496769394@qq.com,
e
971989533@qq.com
* Corresponding author

Keywords: Vocational education; Professional quality; Training

Abstract. This paper mainly argues the connotation of professional quality education and its
important role for cultivation in higher vocational colleges. The aim of higher vocational education
is to cultivate talents with good qualities and technical skills for the needs of the society, for the
production of the first line, which will greatly not only enhance the students' employment space, but
also meet the needs of social and oriented universities own development. Application oriented
Undergraduate universities should continuously improve the teaching system and moral education
system, committing to the cultivation of students' professional quality.
Professional quality refers to the workers to understand and adapt to the social work of a
comprehensive embodiment of the ability, which contains professional awareness, professional
spirit, professional ethics and vocational skills. The cultivation of professional quality is closely
related to the social environment, the school environment and the enterprise environment. Under the
social background, we should increase publicity of the professional quality requirements and
establish good social educational background, which helps students to establish a proper
professional consciousness, immerse in the learning and practice in schools and enterprise to obtain
continual professional development.
To strengthen the cultivation of students' professional quality is an important content in the
current education and teaching work. At present, the application of undergraduate colleges and
universities generally pay attention to the cultivation of students' professional ability, while the
professional quality of the training is another story. The previously quality-oriented education is
difficult to fully cover the professional characteristics, its target is not strong, which needs to
explore a new way. The cultivation of professional quality is a process of learning, practice and
internalization, which is necessary to develop students' multiple intelligence.

To Establish a Perfect and Complete System, so that Students Have Rules to Follow
Let the students grow in the strict system and evaluation system and become first-line applied
talent to a high-quality, high skills, and have a strong social adaptation ability, in the process of
implementation of the operation with high standards and strict requirements, strengthen the
guidance and supervision of the operation.
To Establish a Student Management System to Cultivate Professional Quality
As a first - line application of specialized personnel, must have a solid, rigorous, meticulous work
style. Most of these styles of work should be developed in the school. Schools should develop the
corresponding quantitative assessment criteria, the establishment of students' everyday behavior
archives and personal integrity of the file from the student's words and deeds, every move is
regulated requirements, and develop management to promote habits, so as to achieve the continuous
improvement of the basic qualities. Secondly, the establishment of the requirements of the job
requirements of the requirements of the standard, so that students in advance to enhance
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professional awareness, familiar with the professional norms, to lay a solid foundation for future
career. In addition, the establishment of a good student management system, but also can greatly
promote the development of teaching.
To Establish the Teaching System of Training Professional Quality
Application oriented Universities should establish the teaching system of the combination of the
goal, the ability of knowledge and the quality structure according to the requirements of the training
of the professional quality. In the teaching system, the construction of the curriculum system is the
most important link. According to the training objectives, it takes "need' and "enough" as the
limitation in the theoretic course, design and training of professional quality and professional
competence of the relevant professional knowledge content. With the continuous change of the
occupation and the requirement of the new materials, new technologies, new processes, and
gradually established to cultivate professional quality for the purpose of post practical and
professional curriculum system. In the process of teaching, we should organize a good classroom
teaching, cultivate students' rigorous style of study. At the same time, to do check the daily teaching,
teaching supervision and review lesson, evaluation work, the establishment of perfect student
learning assessment system such as teachers of teaching supervision and evaluation system,
promote the daily teaching efficiently and orderly development, so as to achieve the training
requirements of professional quality in teaching.
Doing Good Job in the Teaching of Experimental Training
The cultivation of students' professional quality is reflected in all aspects of teaching, and the
effect of experiment teaching is very obvious. In the course of experiment and training, students
hands-on experience with most rigorous and the most careful of a teaching process. From the
experimental training to the experimental training of the process, as well as the end of the
experimental training to the end of the laboratory equipment maintenance, etc., is required for
students in any link must be taken seriously. Both to ensure that the required experimental training
effect, standardized work processes, and training of students rigorous, meticulous work style.
Carrying Out Work Placement Intern and Work-Integrated Learning
Combined with engineering and post practice in student learning theory is based on the
knowledge of school and enterprise combined practice of talent cultivation mode. In this mode, the
theory and practice have been closely integrated, prompting the students to have a practical
understanding of the requirements of the professional quality. In the enterprise, students can also
understand the concept of corporate culture, feel the operation of enterprises real condition, find
their own problems and shortcomings, gradually correct them in the future school learning, laid a
solid foundation for themselves to become a good employee .
To Participate Actively in Social Practice and Strengthen Social Exercise
Social practice is an important basis to guide students to develop their talent, important way to
adhere to the unity of knowledge and practice , as well as the most effective methods for the
cultivation of professional quality , which will guide students to cultivate good professional
emotion. Through social practice, students can have a sense of understanding of occupation,
occupation, understanding of occupation, professional identity, sense of responsibility and mission.
A Solid Practice of Professional Skills, the Implementation of Professional Qualification
Certification
In addition to acquiring the necessary theoretical knowledge, students practice professional skills.
School teaching should be in line with vocational skills identification standards, and actively build a
platform for training the professional ability of the students, as far as possible to encourage and
organize students to participate in the training and examination of social industry, help them to get
appropriate professional qualification certificates. In addition, the school should make relevant
policies to take initiative to participate in vocational skills training to substitute the related
421
examination scores of subjects, conform to the requirements of society and the changes of the
market.

To Strengthen Moral Education and Improve Students' Professional Psychological Quality

let students have the ability to have a competent professional ideological and moral, cultural
accomplishment. Take the ideological and moral education as a system engineering in practice to
improve the professional quality.
To Cultivate a Sound Personality of Students
Some students in applied undergraduate universities are not admitted to ideal universities for
university entrance exam is not enough. After attending higher school, they found some of the
students with poor grade, who could not compared to themselves, and despise mingle with these
students, create a larger gap in his heart with black mood and lack learning power.
For this part of the students, they should try to have a positive mind, correctly evaluate
themselves and know yourself. For example, they can be arranged in the training course for
bachelor's degree after graduation, or develop good learning good professional skills, make their
own professional skills more outstanding, if they reach senior mechanic or technician's level, their
employment prospects will be bright.
For students with poor grades or families condition, the inferiority is the biggest enemy, they
often have cringe, lack of the enterprising spirit, lack of confidence and courage, lose the chance of
success.
Cultivation of Students' Adaptability to High Strength
Adaptive ability is a person's self adjustment function to the society and the environment. To
cultivate students' ability to adapt to the high strength is the requirement of education itself, and it is
also the requirement of the development of the times. Students have strong adaptability after
entering the society, facing the oncoming problems, they take it in stride. Some students even can
change the resistance as the driving force in the social life.
Conversely, students have poor adaptability will cause various maladjustment, inferiority, world
weary mood, and bring many social problems. So for students just entering the university life, we
should guide them in the learning methods and management mode by class, cultural and sports
activities, expand the quality of training and other forms of students practical training. Then
gradually develop students flexible thinking quality, enhance students' ability to meet an emergency,
so that students from the adaptation to the environment, and gradually adapt to the needs of the
society.
To Cultivate Students' Responsibility and Team Work Spirit
Cultivating College Students' team spirit is beneficial for students experience to help each other
and learn from each other and improve their ability of solving common problem; to improve the
college students to work with other people, the unity cooperation initiative, to shape the good
personality and comprehensive quality improvement. Team spirit requires team members to work
together on the basis of accurate positioning, healthy competition. Therefore, constructing the team
spirit of members of the personality and identity of their social role of the requirements is in
accordance with the quality of education to improve students' personality, shape the students' good
personality requirements.
Team spirit emphasizes not only the ability to communicate with others, but also the ability to
cooperate with others. This ability must be exercised through practice and eventually used in
practice. Through practice and training students' ability of language expression, communication
ability, self-discipline, information processing ability. Let the students be quality, solidarity and
cooperation, success and failure of the test, elimination of low self-esteem, self-confidence and so
on interpersonal relationship of mental health, learn to respect each other, support each other,
enhance the consciousness of unity and cooperation.
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Conclusion
It is the highlight in the application type undergraduate education and teaching work to
strengthen the cultivation of students' professional quality, and the professional quality education
must be faced with the employment needs of the students. Students goal ranging from the pursuit of
academic to employment, they urgently need stimulate professional interest, enhance intrinsic
motivation to learn by improving understanding of social and professional, familiar with
professional characteristic and employer demand. Only pay attention to develop students'
professional quality, applied undergraduate colleges and universities would cultivate talents who are
not only meet the needs of the society but be satisfied with people with good qualities and technical
skills.

Reference
[1] Xie Xin, Liu Ningning. The cultivation of students' vocational ability in Higher Vocational
Colleges [J].Study on vocational education, 2007 (11), 73.
[2] Liu Tianying. On the vocational quality education in Higher Vocational Colleges [J].Education
and occupation, 2008 (30).
[3] Liu Anzhen, the right to raise and benefit. The construction of "double certificate" in Higher
Vocational College Vocational Ability Training System [J]. Journal of Xi'an Aerotechnical College,
2007, 25 (3).

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on Current Situation and Influencing Factors of Work-Family

Conflict of Employees from One-Child Family
Ting WANG1,a,*, Lu-Lu YOU2,b
1,2
Business School, China University of Political Science and Law, Beijing, P.R. China
a b
wangting@cupl.edu.cn, 932438620@qq.com
*Corresponding author

Keywords: Work-family conflict, only child, Family-work conflict, influencing factors.

Abstract. This paper summarized the research on the employees' work-family conflict then
determined the employees from one-child family as the target group. Based on the research of the
only-child generation employees work-family conflict and family-work conflict situation and
influence factors, demonstrates the main factors in order to provide policy advice to businesses. Also
through the specific analysis of gender groups explains the different influence factors of male and
female only-child generation employees, thus provides clear conclusions and recommendations.

Introduction
Chinese government began to implement one couple one child family planning policy in 1980,
this unprecedented policy of the Chinese community formed a large number of only child, which was
called the only-child generation. As the full implementation of a couple can have two children
policy proposed in the fifth plenary session communique of the 18th Central Committee, thirty-five
years of the one-child policy ended, which even more highlighted the specificity of this group. They
grow up in China's economy high speed development stage, and they have no brothers and sisters, so
they gain more love from elders in home. According to the result of Academy of Social Sciences
population prediction experts through demographic data and computer simulation model estimated,
the number of only children around the country was about 145 million in 2010. After entering the
society, this group will have to solve such as marriage, childbirth, child rearing, support parents and
other issue, so they might have more prominent work and family role conflict. So at present, how the
conflict situation acts? What factors caused the conflict? Answer these questions will help us
maintain the physical and mental health of the only-child generation employees and promote the
accumulation of human resources in enterprises.

Literature Review
In the study of individual factors on work-family conflict, the researchers focus primarily on
whether or not women's work-family conflict is higher than men. Higgins et al (1994) argue that the
influence of the traditional social culture, it is generally believed that women bear the main
responsibility for taking care of the family while men are the main breadwinners shall take the work
role. Compared with foreign, domestic research started late on this issue. But there is a surge in 2006
which imply that this problem has a good research prospect. Yaoping Luo (2007) points out the
antecedents of work-family conflict mainly include work and family stress and gender. Huafeng
Wang et al. (2009) found that gender has an impact on work-family conflict, female employees
experience work-family conflict much more than male employees and the conflict pressure is greater.
So gender is the direct influence factor of work-family conflict, which is also the moderator of the
individual's treatment to the role conflict.
As to the family influencing factors, Greenhaus et al. (1985) argue that individuals need to assume
the role of family members, which requires the individual to meet the needs and expectations of the
family. It also influences the individual to take the time and energy into the work role and even leads
to conflict between two characters on behavior. Anderson et al. (2002) considered that family
424
characteristics such as marital status, children, the elderly and the work of spouse could be the
influence factors of work-family conflict. Chinese scholars Yuxin Liu, etc. (2009) found that the
sense of respect from spouse will affect the conflict from family to work through empirical studies.
From the point of organizational factors, Thompson et al. (1999) think managers affect employees'
family friendly welfare policy and then affect the retention rate of them. Eby et al. (2005) think that
based on the individual need, developing schedules and providing a flexible work hour can help
reduce the employees' work - family conflict. Jianmin Sun et al. (2011) through the empirical study of
207 employees found that the work-family conflict decreases when the individuals feel the sense of
organization support.
The particular research on the only-child groups' work-family conflict is barely none. Only Haitao
Sun and Hongfei Xing (2014) analyzed the work-family conflict situation of adult from only-child
group in Nanjing and they concluded that this group has higher work-family conflict and lower
family-work conflict than others.
Although there are many researches on employees' work-family conflict both domestic and foreign,
researches on one-child group are almost blank. Therefore, this paper suggests the current situation of
work-family conflict and the influencing factors, which based on the survey data sampled from
only-child generation employees in Beijing.

Research Method
Research Method Design
In this paper, we use the way of questionnaire investigation, the questionnaire includes two parts.
The first part is the demographic data of target samples. The second part includes six Likert scales
questionnaire, managers' support questionnaire, career development questionnaire, work-family
conflict questionnaire, family-work conflict questionnaire, job satisfaction questionnaire and stress
questionnaire. The questionnaires of the project mainly translated from Anderson, Coffey & Byerly
(2002) and revised many times. The dependent variable in this paper is the role conflict of only-child
employees, the explanatory variable mainly includes the following parts:
Individual Characteristic Variables. Individual characteristic variables include the gender, age,
education level and other projects of the only-child employees.
Organizational Characteristic Variables. Mainly includes the position type, the monthly
income, the possibility of leaving, the frequency of working hours, the working hours of the week, the
manager support, etc.. The questionnaire also added work pressure and work resources.
Family Characteristic Variables. This variable includes the marital status, whether husband and
wife both have jobs, the number of children and elderly, household labor demand, etc. In the
family-work questionnaire we added the family support as an explaining variable.
Social Characteristic Variables. This variable is mainly about the research of social support
factors.
Cronbach Alpha of the six questionnaires are 0.83, 0.68, 0.87, 0.79, 0.80 and 0.89, which all
reached the requirements of the surveying.
Data Collection and Sample
The sample of this research is positioning in one-child generation employees, so we distributed 280
questionnaires to employees from different industries through the internet. 233 questionnaires were
recovered, of which 214 valid questionnaires, efficiency was 91.85%. There are 126 males and 88
females, 15.89% of them are under 25 years old, 64.02% of them are 25 to 35 years old and others are
over 35 years old. Also, 151 people have already married, accounting for 70.56%.

425
Data Analysis
Influence Factors of Work-Family Conflict
In this part, individual factors, organizational factors, family factors and social factors are
independent variables at the mean time work-family conflict scale scores are dependent variable. The
following results were obtained by using the method of stepwise regression analysis.
Table 1 is the result of the full sample regression analysis, from table 1, the impact of only-child
generation of work - family conflict should be organizational factors especially career development
prospects, job satisfaction and job stress. Also, family factors are important factors to work-family
conflict, for example, the most obvious factor is whether both sides of husband and wife are working.
It is easy to understand that the work-family conflict of a member from dual earner families is much
less than single family workers.

Table 1. Influence factors of work-family conflict coefficienta.

Model Unstandardized Standar t Sig. 95% confidence
Coefficients dized interval of B
Coeffici
ent
B Standard Trial Lower Upper
error version limit limit
(constant) .753 .529 1.421 .158 -.295 1.800
Gender .137 .083 .126 1.652 .101 -.027 .301
Age .014 .078 .022 .180 .858 -.140 .168
Education -.074 .043 -.141 -1.708 .090 -.159 .012
Marital status .115 .127 .105 .904 .367 -.136 .366
Children .026 .075 .039 .347 .729 -.122 .173
Elderly -.089 .088 -.086 -1.011 .314 -.263 .085
Both working .193 .127 .158 1.513 .133 -.059 .445
or not
Salary .037 .056 .069 .661 .510 -.074 .147
Working time .027 .098 .030 .276 .783 -.167 .221
Overtime .073 .050 .161 1.469 .144 -.025 .171
1 Decision-mak .013 .080 .013 .158 .875 -.146 .172
ing power
Lose job -.002 .043 -.004 -.052 .958 -.087 .083
Social .008 .045 .013 .168 .866 -.082 .097
support
Manager .028 .072 .032 .383 .703 -.115 .171
support
Career .203 .083 .220 2.438 .016 .038 .368
prospect
Job .193 .075 .215 2.580 .011 .045 .342
satisfaction
Work .156 .072 .178 2.176 .031 .014 .299
pressure
a. Dependent variable: work-family conflict

426
 Then we carried out two regression analysis on male and female. The result are different from the
full sample coefficient. Male employees pay more attention to family factors, which are also the main
influence factors of their work-family conflict, especially the marital status and whether or not dual
earner families. So the situation of male' work-family conflict changes a lot after getting married. In
addition, organizational factors such as manager support is another notable impact on male only-child
generation employees.
Family factors and organizational factors also influence the work-family conflict of female
only-child generation employees according to the result of regression analysis. But unlike male
only-child generation staff, the impact on female only-child generation staff is negative, which means
that when women get married the work-family conflict of them decrease. There is a traditional
thinking in China that husband should take more responsibility on supporting family, which is
obviously the result shows. In addition, in the influence factors of female employees, the personal
factors of age also has a significant impact than male employees. Only for female only-child
generation staff, the work-family conflict is growing with the increasing of age.
Influence Factors of Family-Work Conflict
As same as the previous part, we also put the family-work conflict to the regression analysis of the
various factors. In the full sample analysis, organizational factors is still the most obvious influencing
factors, especially children, monthly income, overtime frequency and working pressure. The special
point is that with the increase of the working hours the family-work conflict is reducing. Which may
means that reducing the participation of family activities gives the employees less attention and care
about the family members, so the family issues impact little on their work.
When analyzing the gender groups, we found that male and female employees are mainly affected
by organizational factors and family factors, and there is a deeper influence on male only-child
generation employees. The phenomenon of family affect work first by the influence of work time,
another factor is whether the husband and wife both have jobs. Also the influence coefficient of dual
earner families impact on male' family-work conflict is 0.477, while on female -0.256. The result
totally fits the Chinese traditional view and previous study. So only-child generation employees'
family-work conflict and spouse whether work has a great relevance.

Conclusions
This paper roughly evaluated the current work-family conflict and family-work conflict situation of
only-child generation employees. And provide a deep analysis on the influencing factors. By the
comparison of influencing factors to male and female, we draw the following conclusions:
According to the general situation of the sample, work-family conflict and family-work conflict
both exist in the only-child group. And the main influence factor of both two conflicts is
organizational factor.
In the organizational factors, career prospects have the greatest impact on the work-family conflict
of the only-child employees, and they are positively related. Secondly, job satisfaction and working
pressure these two factors influence the work-family conflict on the outcome variables, which
consistent with previous studies.
In the organizational factors, working time has the greatest impact on the only-child group
employees' family-work conflict, and the two are negatively correlated. The longer you work, fulfill
the responsibility of the family roles cause less negative effects on the job. The next factors are job
stress manager support and career development. Different from the work-family conflict, career
development factors have the least influence on family-work conflict, the better the career
development prospects, the less the negative impact on the work.
From the view of gender, male employees most influenced by family factors that marital status and
whether husband and wife both have jobs on work-family conflict, followed by organizational factors
managers support. Also married men will assume more responsibility and feel more work-family

427
conflict. For female only-child generation employees, career prospects is the most significantly
influencing factor. Good career prospects will promote female employees to devote more energy at
work, which leads to work-family conflict.

Suggestions
From the point of questionnaire scores, the work-family conflict (3.36) is higher than the
family-work conflict (3.07) to only-child generation employees. Which indicates that the enterprise
and the leader should pay more attention to the work-family conflict. From the view of the study on
the influencing factors, organizational factors and family factors should be the first concern, secondly
is the personal factors. According to the research on the influencing factors of the work-family
conflict of only-child group employees and the conclusions above, we have three suggestions to the
enterprises:
The only-child generation employees, especially the male employees, are under big burden and
pressure after getting married. So enterprises should pay more attention to married employees and try
to know their job satisfaction. In addition, enterprises can implement the welfare family policy,
provide married employees family benefits, such as child care, family business, health insurance and
other family welfare, in order to reduce the degree of conflict between employees.
As for female only-child generation employees, enterprises could provide them a clear career
prospects planning and relax the age factor. At the same time, corporate and government shall
encourage married women to get their job, in order to release the heavy burden on the men.
In term of policy, government should provide financial support for companies to make family
benefits to employees. Also government should establish guarantee policy for children and elders at
the same time. Public support and welfare policy can help reduce the work-family conflict of
only-child generation employees.

Acknowledgement
This research was financially supported by the Science Research Program of University Level (Grant
NO. 16ZFG79002) and the Young and Middle-aged Teachers Training Support Program in CUPL,
the Humanistic and Social Science Research Fund of Ministry of Education of China (Grant NO.
11YJA790153), and the Program for New Century Excellent Talents in University launched by
Ministry of Education of China (Grant NO. NCET-12-0978).

References
[1] Higgins, C., Duxbury, L., Lee, C. Impact of life-cycle stage and gender on the ability to balance
work and family responsibilities [J]. Family Relations, 1994.
[2] Anderson, S.E., Coffey, B.S., Byerly, R.T. Formal organization initiatives and informal
workplace practices: Links to work-family conflict and job-related comes [J]. Journal of
Management, 2002, 28(6):787-810.
[3] Greenhaus, J.H., Beute, I.N.J. Sources of conflict between work and family roles [J]. Academy of
Management Review, 1985, 10(1):76-88.
[4] Thompson, C.A., Beauvais, L.L., Lyness, K.S. When work-family benefits are not enough: The
influence of work-family culture on benefit utilization, organizational attachment, and work-family
conflict[J].Journal of Vocational Behavior, 1999, 54:392-415.
[5] Eby, L.T., Casper, W.T., Lockwood, A., Bordeaux, C., Brinley, A. Work and family research in
IO/OB: Content analysis and review of the literature [J]. Journal of Vocational Behavior, 2005, 66:
124-197.

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[6] Haitao Sun, Hongfei Xing. Work and life: an analysis of the influencing factors of the role
conflict of the only child in the adulta case study of Nanjing City [J]. China Youth Study, 2014,
(10).
[7] Huafeng Wang, Shenghua Jia, Shengxiao Li. The mediating effect of gender and work-family
conflict [J]. Psychological Science, 2009, (5).

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Developed Country City Public Transportation

Policy Evolution History
Bo LIANG
Kaifeng University, Kaifeng City, Henan Province in China, 475000
195284025@qq.com

Keywords: developed countries; Bus priority; Urban transport policy

Abstract. raising the level of motorization, in addition to improving people's lives and promote
economic development, but also brought city traffic crisis. Western developed countries, Evolution
of urban transport policy is to encourage private transport to the implementation of priority to
public transportation, which for our period of rapid urbanization in urban transport to provide a
reference for policy making.
Urban traffic management is an important work in the modern urban management. In recent
years, China's urbanization process has accelerated markedly, which leads to gradually increase the
level of motorization, the more people travel together is also convenient, fast. However, everything
has two sides. Increased motorization has brought tremendous benefits to people, at the same time,
it also brings a series of traffic problems. Such as Beijing, Shanghai and other cities, urban traffic
congestion has severely affected people's travel efficiency, and in some small cities, traffic
congestion has emerged. Raising the level of motorization led to traffic jams because of what?
This is the inevitable process of urbanization in the phenomenon?
To answer these questions, it is necessary review and analysis of foreign policy development in
the developed evolution of urban transport and its trajectory, summed up the developed urban traffic
management experience.

Part one, Evolution of Domestic and Foreign Developed Urban Transport Policy
100 years from the development of urban transportation history, urban traffic management policy
has gone through three stages, namely, to encourage individuals to support transportation, limited
Personal transportation system, priority development of public transport.
Stage of Support to Encourage Individuals to Transport
In 1885, the German Karl Benz invented the automobile, it appears to accelerate the process of
urbanization throughout the world. After the World War I, the West has entered a phase of rapid
urbanization. 1933, adopted in Greece, "Athens Charter", in which has been clearly stated: "Car of
the universal application of transport ... the need for a new street system to accommodate modern
transportation needs." Its purpose is to encourage the development of private cars. Soon, this
strategy emerged in many countries of the transport policy.
Los Angeles is the first city in the development of car trafic.20 years of last century, the city
entered its second large-scale mobility, urban transport policy-makers to encourage the development
of private cars in urban planning proposed to car-based urban transport planning policy, in planning
the city streets, boulevards and highways, always thinking about the car as the main transport. The
same policy in the United States have also used in other large cities such as San Francisco, Boston,
Washington and New York.
60 years of the 20th century, French President Georges Pompidou has put forward the "Paris of
the traffic must adapt to the development of cars," "that every employee has a car" policies to
encourage the development of private transport.
These encouraging and supporting individual car transport policy, to a certain extent, for the
city's rapid development and raise the level of motorization has played a positive role. But as the

430
number of cars is rising rapidly, Disadvantages of cars takes a lot of roads have brought a large area
of "trouble".
1937, Los Angeles, first appeared in traffic jams. Since then, people continue to be troubled by
the city's traffic jams. To 70 years of the 20th century, in San Francisco, Boston, Washington and
New York and other large cities, as the number of cars increases, more and more frequent jams,
overcrowded vehicles.In Chicago, the highway and the main channel, the "slow as a snail car"
picture appears everywhere, in the center of the carriage car faster than 100 years ago not much. In
Europe, Athens, Copenhagen, Paris, London, Tokyo and other big cities in Asia have also been
blocked disaster, the speed of the vehicle is running less than 20 kilometers per hour. London and
Paris, the average speed of cars is only 16 km. Into the 90's, the traffic congestion becomes more
serious. Since 1989, created a jam of vehicles up to 53 km of the record, the traffic in London has
not improved. Once, from Heath row to central London M4/A4 road was almost blocked the vehicle.
At that time there was a European Commission transport people with emotion, said: "We might as
well set up a sign to tell people: go home, London has been closed." Summer of 1997 in Paris, even
a long section Ketedazu was blocked up to four weeks.
The face of severe traffic congestion, the city's policy makers have taken some ways: Out a large
number of roads have been paved to ease traffic. At the December 18, 1991, U.S. President George
Bush signed a land transport efficiency of a composite bill, proposed total budget of 155 billion
dollars from 1991 to 1997 on road, traffic safety, the traffic volume of the transport system
development plan, of which more than 121 billion dollars will be used for the construction of road
works. Unfortunately, the problem is not as easy as the government thought, and finally, that there is
a stalemate: the road widening, and traffic congestion but more serious.
Stage of Restrictions on Personal Transportation
People experienced the pain of traffic again and again before finally beginning to understand: If
taken blindly support policies to encourage private transport, the result can only be one - serious
urban traffic jams. So some cities began to introspection and take policies to limit the development
of private transport. Singapore and Hong Kong is the first to adopt such a policy representative.
From the 70s, the Singapore government began to implement traffic control method. Government
acts on the car heavily taxed, the tax rate is currently 150% of the original price for the new car,
another 45% import duty charged, add up to the equivalent of 2 times the original price of vehicles.
In this way, the government effectively controls the growth of private cars. In addition, the
Singapore government has also introduced a quota system for vehicles, this policy is mainly aimed
at forcibly regulate the purchase of private cars, the total control of the car. In accordance with
domestic traffic conditions, the amount of scrapped cars, road infrastructure, service capabilities
and the implementation of the new traffic management tools and so on, the Government decided to
accept the vehicle registration quotas next month. Want to buy private cars are required to
participate in a monthly quota of fair bidding, bid the successful bidder to pay a certain fee to be
allowed to buy a car and up the rear. And legislation for each car ownership certificate is valid only
for 10 years. As a result, Volume of Singapore's car was very effective in controlling the
government.
Successfully control the vehicle in total, the Singapore government began to control the
sub-period traffic flow to the city, during peak hours all to the city vehicles are required to pay "into
the zone" fee, This has made some people choose to drive into the city at different times, to further
improve the traffic situation. Singapore Government adopted a comprehensive traffic management
policies to restrict private after a few years, the city has been greatly improved traffic conditions;
into the 90's, almost all the major cities in the world's best place to traffic conditions, Have no
traffic congestion even the busiest times.
Another representative city of this policy is Hong Kong, China, Hong Kong SAR Government
has also drawn heavy duty car behavior, but not as high in Singapore, Pumping of the tax car prices
in terms of the relative level of people's income, not too expensive, those who have the ability to
buy a car or a lot. So use another policy in Hong Kong to control the number of vehicles is used -

431
Control the number of car parks. That is, by reduce the construction of parking spaces to limit the
use of private transport, so as to achieve the purpose of limitation.
In Hong Kong, skyscrapers everywhere, beautiful buildings, but one thing makes all been to
Hong Kong people feel strange: the high-rise buildings only a few parking spaces. In fact, This is
the government policy of control according to the number of cars. In the city center, parking
building is strictly controlled by the government. Allowed to build a small number of parking
spaces in every building, then followed the surge in parking fees. Because of this, the vehicle is
impossible to drive to the city center, the time when people go to work. Where parking is too
difficult, and too expensive. The same policy is also suitable for downtown and shopping centers,
such as Mong Kok, is also a lack of parking spaces. Even in individual residential areas, the
Government has strictly controlled the number of parking spaces. Such as the Grand View Garden,
with nearly ten thousand residential units, parking spaces even less than 300.In this way, making car
ownership in Hong Kong less than 10%. The success of the car stricting control policy approach
to the traffic jams are now suffering the pain of some of the big cities inspirational. City of London
have begun to charge the cars entering the downtown area during peak hours, and this policy was
implemented for some time, and can effectively alleviate the charging zone traffic.
Stage of the Priority Development of Public Transport
Although the comprehensive restrictions on private transport in the ease urban traffic congestion
has made some achievements, but cannot meet the travel needs of large-scale urban residents, then,
Some people in Western countries began to put forward: should be made to save the city, it is
necessary priority to the development public transport in the city, and through a lot of priority to the
development proved the importance of urban public transport.
Paris first developed and implemented policies that give priority to the development of public
transport. After 70 years, Paris has some serious traffic problems. Built in 1973 Paris's loop, just 10
took place in a traffic jam. In 1974, Valery D'Estaing was elected President of France. He came to
power, negate the policy of encouraging and supporting private transport in the President Pompidou
period, give priority to the development of public transport, cancel the fast road construction plan of
the south bank of the Seine, decided to accelerate the development of rapid rail public transit system
to compress the amount of private car travel.
In Paris, the government implemented a policy priority to the development of public transport. Its
main contents include: Provide high quality services for passengers, attracted by the original
passenger cars; public transport fares should be lower than the private car travel expenses; set free
parking by the public transport pass in an important public transport hubs lines; improve urban car
parking charges; provide bus lanes in the streets of conditions to improve their speed, and matched
with the rapid rail transit. To implement this policy the French government enacted a special
"national traffic law," and so on. Japan also attaches great importance to public transport
development strategies. In the development process of urban public transport has clear principles:
First, in order to ease the tensions of urban passenger must be efforts to develop large capacity and
efficient public transport-based rapid transit system; Second, service quality and passenger transport
service must be subordinated to the National level of economic development, diversified as far as
possible; Third, in terms of policy, stabilize and strengthened the economic benefits of transport
companies and investment capacity. In addition, the government has to develop citizen awareness of
traffic, has taken many measures in the construction of integrated hubs, etc. Thus laid the
foundation for the city manager of public transportation construction and safety management. On
the construction in the regulations, according to "Urban Planning Law" were developed "rules of
the road", "tram regulations "and" parking regulations," and so on.
The three stages between them is not completely separate, often coexist in many ways. As in
Western Europe and Japan, although the main policy providing public transport, but also to take
some control measures to limit car use. Another example is the United States, although its cars to
support the development of the city has been advocated in most city, but in recent years, is
encouraging the development of public transport priority.

432
Part two, The Development of Urban Transport Thinking And Enlightenment
In fact, over the years, China has always taken a policy of strict control on the development of
private cars. Until the late 80s of last century, Government in accordance with the prevailing
economic and social development needs of transportation, cars and fuel prices was reduced to
reduce the car tax rate. In 1994, China began implementation of the family car strategy, a clear
policy to encourage private car is proposed. In the 21st century, the private car consumption and the
effect of WTO accession, as two strong boosters, push 2002 in the first half of the Chinese auto
market to a historic peak. By far, the Chinese automobile market has been hot. Today, China's
automobile industry has become one of the fastest growing industries and pillar industries in
national economy, the level of motorization in many cities has reached a very high level.
Unfortunately, in recent years, urban transport ills like the original developed countries, began to
appear in our city. As described in the paper before, a lot of urban traffic situation is not optimistic.
Through the development of urban transport policies evolution of western countries , it is clear
that they are basically the process of transport development from support to encourage private
transport to limit private transportation, to give priority to the development of public transport. In
the process, they have been setbacks, the experience gained and lessons are worth our reference and
learning.
Our city is in a stage of rapid urbanization, of motorization is very demanding, The issue before
us is that whether is able to enter the family car, but rather how to grasp the car into the family's
degree, and after entering the home, how to control the use, as well as in supporting infrastructure,
traffic management, community education and other issues which policy measures should be taken,
and how should be done to respond the urban traffic congestion and so on. In fact, these problems
are much more complex than the intuitive feel. In order to solve these problems, the city manager
needs to study urban traffic management policies of Western countries, Based on their experiences
and lessons ,studying the following issues: City can accommodate the number of vehicles under the
constraints of natural resources and environmental resources; How do actively strengthen the
construction of public transport, while in the car into the family, implement bus priority policy to
make public transport and private transport to maintain a reasonable ratio between the relationship;
how to guide the family car in a reasonable time and space used within a range; how to use new
technology to speed up the transformation of the road transport system to improve system efficiency
and efficient use of resources. Only in this way, urban transport development can take less or not
other people's old way, proposed for the development of their urban transport policy to achieve
urban long-term, coordinated development.

Acknowledgment
This research was financially supported by the Science and technology project of Henan Province, NO:
152400410023 and the Scientific research projects in Universities of Henan Province, NO: 15B630009.

Reference:
[1] Chen Yang. Connotation and public transport priority measures. Urban problems[J], 2001 (5):
64-67.
[2] Yang Qingshan. Foreign priority to the development of policies and measures of public
transport. Urban public utilities[J], 1997 (5): 11-14.
[3] Liu Changli. Singapore Summary of urban traffic management policies. Traffic and transport[J],
1999 (1): 20-22.
[4] Wang Wenyuan. Foreign Metropolitan Transportation Development Model and its Evaluation.
Urban problems[J], 2001 (1): 55-58.
[5] Gu Shanghua. Cities need to develop rapid rail transit. Jiangsu transport[J], 2002 (2): 14-15.

433
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Comparison of Organizations Human Resource Management

Mode in Different Culture

Meng GUO
Macao University of Science and Technology, China

Keywords: Human resource management mode, Culture differences, Traditional modes, New
characteristics.

Abstract. With the whole world swept by the process of economic globalization today, the conflicts
between organizational management and cultures are becoming more and more important. Economic
globalization sweeps over the whole world and organizations in different countries are constantly
learning from each other in competition. The growing successful experience of western organizations
tells us that culture has direct effect in promoting or deterring management. The management modes
in different countries appear to have their own characteristics. This paper compares different modes of
human resource management (HRM) in organizations from the view of culture differences.

Introduction
Culture is the process and consequence of human activities, and it is invisible just like the air and
water yet it exists in all the activities we engage in. Economic activities are the basic practice in
society, and different countries shape different development patterns under different backgrounds.
The development of economic activities promotes the flow of resources from one place to another and
enhances the blending of various ethnic cultures in differing areas. Therefore, the development of
human economic activities embodies the perfect blending and inseparability of economic activities
and ethnic culture. In transnational organizations, people from different cultural backgrounds gather
together to undertake the producing activities. Therefore, it is a critical issue confronted by every
organization to learn how to organize, manage and motivate employees to give play to the human
resource in organizations to the greatest extent and to improve the production efficiency so as to
finally achieve the comprehensive advance of organization performance and promote the
development of the whole society and state economy. Therefore, how to learn more about the culture
from different countries and nationalities in order to motivate the understanding and communication
among each other becomes very important.

Literature Review

Domestic and Foreign Current Research Status

The majority of scholars abroad tend to carry out practical research of the organization and they
technically analyze the actual impact exerted by the culture on the organizations management on the
basis of the data obtained.
Kopp (1994) mentioned in his book that under the tendency of globalization, culture is playing an
increasingly important role in management. Comparative management is a science studying how the
cultural differences influence the actual management process against the background of different
social environment and concluding, based on a plenty of facts and data, that various cultures have
already benefited the development of American organizations a lot. Tung (1984) believes that
business performance of transnational organizations depend on the combination of various available
resourcestechnology, capital, management style and manpower, among which the manpower is a
vital factor determining the transnational organizations successful management because the removal
of manpower prevents other resources from being used effectively. Therefore, transnational
434
organizations must lay enormous emphasis on human resources planning and regards it as a part of the
overall strategic planning and control process of the organization. Salk and Brannens (2000) study
shows that though national culture cant be embodied in data, it is of great importance to interpret all
types of interrelationship patterns in a team, and especially in the management of transnational
company and building of teams, it is the key to motivate team members to get to know each other and
promote cooperation.

Research Method
The paper lays extra emphasis on the study of the difference in organizations management cultural
thoughts against various cultural backdrops, so the concrete research methods include:
The first one is the method of comparative analysis. The paper mainly adopts comparative method
to analyze the traits of organization human resource management against different setting and by
comparison analyzes the cultural reasons contributing to differing patterns.
The second one is the method of induction and generalization. The paper, from the angle of culture,
reviews the difference in the management thoughts of the west and the east and the traits of the human
resource management patterns in various countries, and generalizes the divergence of cultural
management between the west and the east and the strengths and weak points of organizations
management patterns.

Comparison of Organizations Human Resource Management Mode in Different Culture

Human Resource Management in the United States

Market Allocation of Human Resource. As a typical country believing in liberalism, the labor
market in the United States is well-developed. Its organization mechanism opens widely to the
outside world and the market mechanism plays a fundamental role in the allocation of human
resources (Arthur, J. B., 1994). The demand of organizations for human resource can almost be
satisfied through the labor market. The supply and demand relationships between organizations and
employees are simply short-term. There is not too much constraint in terms of the rights and
obligations.

Highly Specialization and Institutionalization of the HRM. The management foundation of

organizations in the United States is agreement and rationality, which pays close attention to the rigid
system arrangements. The organizations have a clear mandatory and hierarchical organizational
structure, with clear division of labor and responsibilities, advocate controlling based on standards,
and have explicit stipulations with regard to the procedures and policies in solving the normal
problems (Sparrow, P., Schuler, R. S., & Jackson, S. E., 1994). Most organizations have a job
description for each position, clearly describing the specific requirements regarding the quality of the
employees for each position.

Pursuit of Capability-Oriented Employment Method. The organizations in the United States

attach great importance to the individual capability, with features of affinity and non-discriminatory
externally. After entering into an organization, the employees with master's degrees can be directly
upgraded into the management level. The more the education you have, the higher the starting point
you will be in. The executives in the middle and senior level may not only be promoted internally, but
also be chosen among outstanding people from other organizations, who will be treated equally
(Harvey, M., Speier, C., & Novecevic, M. M. 2001).

Focus on the Construction of Corporate Culture. Since the 1970s, the organizational
management in the United States has entered an era of corporate culture, establishing corporate
cultures centering on values to enhance the centripetal force, sense of belonging and cohesion of

435
organizations. The climax of organizational culture in the United States formed in the 80's is still
thriving nowadays. The focus of the organizational culture lies completely in the individual emotion,
sense of ownership and initiative and the coordination between individual and individual, between
individual and organization.

Development of Learning Type Organizations. In early 1990s, the human society has entered
into an era of knowledge economy. The learning type of organization is the most typical one in the
new management mode. Under the motivation of this theory, the organizations in the United States
have launched a new management reform, highlighting the management of human capital and
intellectual capital. The organizations are in the transition to learning type of organizations.

Human Resource Management Mode in Europe

Strict Selection and Usage of Employees. European organizations are in a consistent pursuit of
fewer employees with high quality. Both the managers and workers must fully comply with the
requirements of the positions, and will be hired only if they have passed all the strict examinations.
The organizations will by no means compromise to anybody or lower the standards. After employees'
entering into an organization, personal archives will be set up. Most organizations will establish a
rigorous performance evaluation system, which will be used to carry out evaluations on the employees
(Milliman, J., Von Glinow, M. A., & Nathan, M., 1991). Unqualified employees need to go through
re-training or position swift. It is generally believed by the European Employers that only those who
are above 35 years old are qualified to be managers. In this connection, the staff promotion in
European organizations is relatively slow.

Implementation of Dual Track for Vocational Education. European countries put vocational
education on the strategic height and implement dual track for vocational education. That means
combining learning practical operation in organizations with learning theoretical knowledge in
school, and thereby linking the education system together with employment system. It is stipulated by
law that all the organizations shall bear the obligations of training apprentices. Students graduated
from an ordinary high school may choose and apply for one of the majors stipulated by the state and
have a three-year study after enrollment. These kinds of students who are cultivated under the dual
track system not only know about the theory, but also know how to operate. After graduation, they can
quickly become the qualified talents of organizations.

Human Resource Management Mode in Japan

Strong Culture Tint. The Japanese culture is deeply influence by the Chinese Confucianism. The
core of the corporate culture in Japan lies in respecting and believing people, pursuing "harmony" and
loyal ethics. It is generally believed by them that the "harmony" in the corporate group should be put
in the first priority. Driven by this consciousness, the operators always regard the morale of the
employees as the major management resources of the organizations and thus pay attention to the
combination of the management goals of the organizations together with the multi-level demands of
the employees.

Career Long Employment System. The Career Long Employment System is the most
outstanding, as well as the most controversial policy in the Japanese organizational management. It
has special meanings for the manufacturing industry which adopts the comprehensive quality
management. Firstly, it is helpful for the long-term training program to the employees. Secondly, it is
beneficial to the development of the corporate culture. Thirdly, it can increase the employees' loyalties
to the organizations. Until today, most manufacturing organizations still maintain a stable
employment policy.

436
 Wage System Based on Seniority. With the increase of the age, length of service and working
experience of the employees, their salaries will be raised automatically. The wage system based on
seniority is beneficial to the implementation of career long employment system. The administrators in
an organization start working from the grassroots and are promoted gradually during the long process
of working in the organization. Thus their familiarity to every aspects of the organization is conducive
to the reduction of making wrong decisions.

Reduction of the Ratio of Seniority Factor and Cultivation of Innovative Talents. Effective
human resource management mode should be based on the changes of the environment. Currently,
many Japanese organizations have weakened the proportion of seniority factor in the composition of
the basic salary, promoted a capability-oriented system to give corresponding compensation based on
one's ability and paid attention to the effective allocation of labor resources in the whole society
(Ouchi, W. 1981). A research conducted in January 1996 on the HR managers of organizations which
are listed in the Tokyo stock exchange, 82.47% of the HR managers thought that they will try to
maintain the career long employment system while only 10% of the HR managers thought that they
should maintain the wage system based on seniority.

Trial on Annual Salary System. Since the 90's, some of Japanese organizations started trying
"capability-oriented salary" and implemented annual salary system". Survey shows that only 10% of
the big organizations try out the annual salary system, which basically only aim at managers,
excluding the grassroots. Moreover, the organizations adopting the annual salary system do not aim at
lowering the salaries of white collars or getting rid of economic recession, but are for the purpose of
improving the working efficiency of managers (Ichniowski, C., & Shaw, K., 1999).

Human Resource Management Mode in China

Strong Dependency of Employees to the Organizations. During the period of planned economy,
the labor measurement made by the state-owned organizations was based on non-market situations.
The relationship between the individual and the state-owned organization for which one works is one
of "dependent" (Hannon, J. M., Huang, I. C., & Jaw, B. S., 1995). After an employee is employed, in
addition to the salary, the organizations need to afford his housing, medical, insurance and other
benefits. Even the responsibilities for the job and education of his wife and kids should be borne by
the organizations.

Harmony of Labor Relations and Internal Personal Relations. Another major characteristic of
human resource management mode of Chinese organizations is the harmonious labor relations,
including the harmonious internal relationships and the harmonious external environment (Welch, D.,
1994). The family-kind of management attaches great importance to the royalties of its employees and
pays attention to the cultivation of employees' sense of loyalties and belongings, trying to capture the
hearts of the employees by "love" and making its employees be willing to work hard voluntarily for
the goals of the organizations.

Less Emphasis on the Development and Training of the Employees. Chinese organizations
generally fail to realize that the re-mould of human resource is a profitable investment. Although
some organizations do realize the importance of training, yet driven by the fear of "training employees
for other organizations" due to the talents flow, they are unwilling to pay sufficient attention and only
focus on their pre-job abilities and education qualities. And the desire to strengthen the in-service
education, lifelong education and the quality training is not strong enough.

437
Enlightenment of the Human Resource Management Culture and Mode for Chinese
Organizations

Inherit and Carry forward the Excellent Management Idea in Traditional Chinese Culture

Value the Adaptability in Tactics. It means avoiding adhering to the rules and adjusting and
altering according to the change of circumstances. Under the intense change of market economic
environment, the operating conditions are change non-stop all the time, so the organizations must
maintain sensitivity and react actively on its own in order to survive the severely competitive
environment.

The Management Thought of Emphasizing Strategy. Scheme and strategy is the epitome of
Chinese wisdom, and the strategies in Master Suns Art of War has always been acclaimed and used
by administrators at all times and across the world.

Chinese Tradition Always Esteems the Idea of Harmony. The typical manifestation is that
Chinese people highly value interpersonal relationship, and from the state-owned organizations and
private companies to employee, all of them pay great attention to interpersonal relationship and
attempt to foster a harmonious environment, which happens to coincide with the fact that modern
management highlights peoples social side.

Learn and Absorb Scientific Human Resource Management Thought from the Western
Organizations
Highlight individualism. China had been stressing the role of the collective in management in the past
such as the idea that to subordinate personal interest to that of the collective (Yammarino, F. J., &
Atwater, L. E., 1993). Such collectivism restrains peoples personality, and valuing only collectivity
in the organizational nips peoples imagination and creativity and stem peoples exploitation of
individual potential. Therefore, we should find the balancing point between collectivism and
individualism which could stimulate team spirit and collaboration, and on the other hand, individual
activity could be fully motivated in allusion to Chinese peoples departmental selfishness and the
bonding point of individual value and organizations value could be located. Then, the individual
value could be achieved in the process of realizing the organizations value, and consequently the
mutual promotion and sound development of the two ensue.
Advocate the employee training. It is Japanese organizations emphasis on this aspect that makes
their organizational performance leap greatly forward. The competition of economy consists in the
competition of talents. Chinas vocational education has always been the weak chain and to change
the status quo, the mentality that receiving education is a stepping-stone to success when hunting for
jobs needs to be changed in the first place; secondly, a faultless and sound system of employees
education must be advocated in order to constantly enrich and enhance the employees in the
organizations.

Innovation in Human Resource Management Pattern of Chinas State-owned Organizations

With the development and innovation of management thought in Chinese organizations, substantial
introduction of management experience from abroad, spread and practice of advanced management
methods in China, Chinas family-business-centered traditional vertical management pattern will
blazes new trails on the basis of the absorbing of progressive management experience from abroad,
and China is in urgent need of creating organizational human resource management pattern with
Chinese characteristics.

438
Implement Post Management and Select Employee Truly Suitable for the Position
Post management is the core content of modern organizational personnel system and also the starting
point and goal of personnel system reform. It is the key in undertaking post management work to carry
out post responsibility specifically, ascertain coefficient of post scientifically and rationally,
formulate effective methods for post evaluation, and divide organizations employees into
management posts, professional technician posts and logistic support posts in order to break the
previous identity limit of all kinds of labors.

Improve Employee Motivation Mechanism

The first and foremost in organizations motivation mechanism is the salary system and Chinese
organizations should exert themselves to strengthen the incentive function of salary.
Highlight the combination of spiritual encouragement and material incentive. For one thing,
employees economic and material needs should be heeded in order to boost employees working
enthusiasm and creativity by making good use of material motivation; for another, the supplementary
function of spiritual incentive to material motivation should be valued by communicating information
with employees frequently, and the salary system and other motivation modes should be combined
practically to meet employees reasonable needs at different levels and in various forms and shape
employees sense of belonging to the organization.
Establish and improve salary system with long-term incentive effect gradually. It is centered on the
employee stock ownership plan catering to all the staff and the executive stock option plan targeting at
the management and technical personnel so as to allow employees to take part in the management of
the organizations and share organizational profit and risks together.

Conclusion
This paper, from the perspective of the difference in the western and eastern culture, conduct a brief
comparative analysis of the organizational human resource management thought and pattern of
various cultural backgrounds. Firstly, we explain the difference of eastern and western management
thoughts by comparatively analyzing the cultural traits of eastern and western cultural traits, and
conclude by analysis that such difference in thoughts is rooted in differing historic culture. Secondly,
by contrast, we analyze the organizational human resource management patterns of several typical
countries such as USA, Japan, China and European countries, and come up with the strong and weak
points of those patterns. On such ground, we put forth some concrete ideas about improving the status
quo of Chinese organizational human resource management in the last chapter, namely, the
combination and innovation in management culture and management pattern.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Distribution Precision System in the Last One Mile of Steel Distribution

Yong-Chuan WANG1,2,a,*, Lin YAO3,b
1
TianJin University, College of Management and Economics, Tianjin, China
2
WuHan BaoSteel Central China Trading, Co., Hubei Province, China
3
DaLian University of Technology, Liaoning Province, China
Email: awangyc@baosteel.com, byaolin@dlut.edu.cn
*Corresponding author

Keywords: Lean manufacturing, Modern logistics, Steel distribution.

Abstract. A serious management problem for steel distribution will be caused when downstream
customers change their production modes from order forecast to pull production. To achieve the
precision delivery to clients, DPS (Distribution Precision System) is designed by adopting modern
logistics and lean manufacturing concepts in this paper. The application of DPS in WuHan BaoSteel
Central China Trading shows that intelligent control, precise distribution and business process
automation can be achieved under the condition of lean manufacturing. Furthermore, information
barriers in the whole supply chain are eliminated to implement process share and improve the
efficiency.

Introduction
Since the world has set off a new wave of innovation and revolution, the development and
industrialization of mobile internet, intelligent terminal, big data, and internet of things technology
has made a significant breakthrough in the field of traditional industries. For instance, intelligent
manufacturing, intelligent transportation, and smart devices have converted the traditional industries
into the high-speed development period. With the gradual appearance of overcapacity in Chinese
steel industry and the contradiction between supplies and demands, steel companies become
cautious in capacity expansion and structure adjustment. Competition among enterprises has
gradually changed from output to the service for customers so that companies can focus their profit
points on logistics as the third profits source. Thus, Chinese companies are paying more and more
attention to steel logistics and information management so as to improve economic benefits and
decrease the costs. Meanwhile, steel companies have turned to provide products and services with
abundant contents. The boundaries between internet and manufacturing, as well as production and
service, become blurring nowadays.
With the rapid increase of automobile production and intensified competition, production
efficiency and cost control become an endogenous power for the high-speed development in
automobile enterprises. Due to different production cycles and patterns, any fluctuation in the
supply chain would cause unpredictable influences to the eventual assembly of the automobile in
the traditional cooperation between steel and automobile industry. Consequently, a large quantity of
inventory must be stored in each cache of the supply chain to ensure precise supply of material and
parts within limited delay, which not only inhibits the efficient operation of the supply chain, but
also bring continuous cost pressure in some certain period. However, by means of advanced visual
information technology and mobile internet, it is possible to build a closer cooperation mode
between steel companies and automobile customers.

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Preliminaries

Distribution Precision System

In this section, DPS will be introduced. First, the situation of supply chain and steel distribution
supply chain will be introduced. Second, the current problems of the supply chain operation will be
presented.
In the traditional cooperation between steel and automobile industry, the companies production
is organized in a predictive way. Based on the planned model and past production data, the
companies operations are organized, including raw material procurement, preparation for
processing ability, logistics distribution and safety inventory control. In the traditional cooperation
between steel and automobile industry, any fluctuation in the supply chain would cause
unpredictable influences to the eventual assembly of the automobile due to different production
cycles and patterns. As a result, a large quantity of inventory has to be stored in each cache of the
supply chain so as to ensure timely and precise supply of materials, which not only inhibits the
efficient operation of the supply chain, but also makes the operation cost increase causing
continuous cost pressures in a certain period. In order to ensure supply for customers, steel
processing units have to store triple monthly requirement in the upstream supply chain(including in-
process inventory, on-road inventory, inventory of raw materials, processing inventory, finished
goods inventory, etc),which leads to high inventory and capital precipitation in the companies.
Current JIT(Just in Time) mode ensures normal operation of the supply chain. However, the
following problems exit in the process of operation. First, high inventory exists in the supply chain.
In order to ensure timely delivery to downstream customers, the upstream has to increase their
inventories so as to guarantee the supply. JIT mode does not solve the problem of high inventory
throughout the supply chain. Instead, it even aggravates the phenomenon of high inventory. Second,
slow response exits. In current supply chain, information transmits in a single-point linear.
Problems exist in any link may interrupt information transmission. As a result, procurement,
processing and delivery instructions could not deliver normally, leading to a shut-down of the
production line. Based on the linear transmission of distribution business, upstream suppliers have
to wait for the information passed down by downstream. Then steel enterprises start to arrange their
work, which causes a slow response. F the purpose of quick response, upstream suppliers arrange
production in advance based on the past production data, bringing lower precision in the
management and low accuracy of service. Service accuracy in the former distribution mode was
calculated by day while it is calculated by hour after the application of DPS.
Nowadays, the information technology makes the boundaries among supply chain units
disappear, and changes the mode of production management and information. It will also make
business information more transparent and change passive acceptance to active acquirement. By
fully sharing information of inventory, production capacity and logistics, managers could
dynamically adjust safety stock, capacity allocation, and logistics scheduling. Consequently, the
cost of the whole supply chain down is reduced. Finally, everyone in the supply chain can share the
output of cost reduction and achieve win-win situation.
Data Monitoring in DPS
The development of information technology makes business cooperation, information share, and
big data prediction possible. Through data monitoring, a large quantity of complex and real-time
business information could be monitored in the distribution process, and dynamic information can
be presented timely for quick response decisions. By combining dynamic data monitoring with
visualization technology, supply chain units can realize real-time monitoring to the whole process
information in all links. With mobile terminals, drivers can clearly acquire transport task and
dynamic information during transportation. Logistics management persons and customers can
clearly know transportation details, such as driving into the factory, starting to load, finishing
loading, leaving factory, arriving at the destination, etc. With mobile terminals, customers could get
442
information about today and tomorrow's transportation plan and implementation situations anytime
and anywhere. Then, they could track specific transportation condition and geographical position of
each vehicle so as to achieve convenient preparation and adjustment. They could also get the
changing information immediately and give feedbacks quickly. To improve the work efficiency in
the automobile manufacturing enterprise in our country, Liu has constructed basic framework of
lean logistics system and put forward related construction methods, as well as provided guarantee
and foundation for the implementation of lean logistics system in manufacturing enterprises [1].
Meanwhile, Electronic data interchange (EDI) is produced according to the general standard format
prescribed uniformly. The electronic computer systems of cooperative partners could exchange data
and process the information automatically.
Management Refinement
Through the revolution of organizational structure, personnel organization, operation mode and
management mode, the concept of lean production is introduced. It aims to compress invalid
operation time in the production process as far as possible, and make full use of the effective
operation time, so as to streamline all useless and redundant operations and enable the system to
respond according to users' needs flexibly. "Multi-varieties, small batches, more batches" can be
achieved. Modern logistics management mode is to decompose logistics links, define and optimize
logistics process, achieve logistics tracking and dynamic adjustment by using information
technology to collect logistics information [2,3]. Besides, it can improve the efficiency of loading
and unloading, and reduce waiting time and invalid shift of vehicle logistics in the factory, so as to
reduce logistics costs, improve arrival punctuality rate, and timely receive users requests.
Distribution refinement management integrates modern management thinking and information
technology with actual work in the enterprises. Combing lean manufacturing [4] with modern
logistics, supply chain management is proposed to adapt to new manufacturing modes of strategic
users, continually enhancing the level of strategic cooperation and gather/lock users. It not only
upgrades level of processing and distribution supply chain management, but builds an intelligent,
automatic, and visualized collaborative platform. Owing to virtue of mature network platform, the
collection of model plans, forecasting demands, releasing plan management of producing, logistics
management, business process control, early warning, and satisfaction evaluation, are integrated to
provide customers with reliable control plan of whole process and achieve refined management.

Implementation of DPS

Technology Roadmap of DPS

DPS is a management system of steel distribution under the conduction of lean manufacturing and
modern logistics. Meanwhile, it integrates with current operation performance of steel processing
centers for downstream users, and aims to find a better way to solve timely and precision delivery
problems. It attempts to solve high inventory problems in the supply chain. Details are shown in
Figure 1.

Business flow chart and function structure of DPS

Business flow chart gives a brief introduction for steel distribution business. Through application of
DPS, information could be shared among all links of supply chain, enabling each link to make
business preparations, such as preparation of raw materials, processing capacity, and transport
capacity. It makes it feasible for all links to have spontaneous adjustment ability and enhance
response speed of supply chain as shown in Figure 2.

Implementation of DPS
Step (1) Designing management processes and solutions
While model production plans of the vehicle company are shared in the whole supply chain,
demands of raw materials and supply of products can be calculated for all links in the supply chain,
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based on the unit consumption data. And with fluctuations timely delivered to the whole supply
chain, all links would have consistent fluctuate and frequency, so as to reduce bullwhip effect and
guarantee downstream raw material supply while reducing safety stock.
Status of distribution Links and demands of
Status of the supply chain
service final distribution

Goals: solve the bottleneck of final distribution and

increase efficiency

Selection of the theory

basis
Define the influence
factors

Confirmation of
management thoughts
Develop business
solutions
Confirmation of the
business procedures

Mobile internet, GPS,

Develop system solutions
image recognition
Operation regulation
making

System function
realization and
application

Management effect
validation

Management thought
and the system output

Figure 1. Implementation of technology roadmap in automobile steel distribution business.

Requirement Plan

Distribution presion system

Production unit Business unit of

Raw material Logistics
of processing processing
suppliers company
center center
Production capacity and Business documents preparation Logistics vehicles and
Raw material preparation and confirmation with stock of
schedule schedule
finished goods

Processing/
Raw materials Production and Steel
transportation
supply processing distribution
instructions

Delivery confirmation

Figure 2. Business flow chart of DPS in automobile steel distribution.

First, Lean Manufacturing is Integrated with the Whole Supply Chain. Information sharing and
delivery among all links of supply chain helps all units to dynamically establish reasonable products
inventory. According to delivery, demands and production plans of the upstream and downstream in
supply chain is generated. During the process of inventory establishment, production plans are
converted to steel demands in the near future.

Secondly, Logistics Links and Refined Arrangement are Finished. As steel transportation is a
kind of heavy logistics, distribution companies have to handle internal logistics and external
logistics. According to logistics distribution route optimization, effective logistics distribution on

444
the GIS (Geographic Information System) has been designed and implemented an optimum
distribution solution due to traffic problems [2]. In the internal logistics, processed small coils and
board packages are always distributed to different places in the warehouse. Unavoidably, vehicles
have to route between all products warehouses. Refined management can help to determine the path
of a vehicle according to storage location. Standard labor hour can be designed according to cargo
types (plate, coil) and equipments. As a result, the routing plan of every vehicle and deliver plans of
every transportation unit is generated. The distribution information will be sent to logistics board
and mobile applications of drivers.

Last, Task Pushing and Early Warning Mechanism is Established. According to business
procedure and standard labor hour, links of task pushing and early warning are formulated to load
information received from the supply chain into internal business chains. At the same time, the
abnormity and fluctuation in the business chain can be shared so as to wipe out information
asymmetry in the supply chain.
Step (2) Developing information system to support distribution precision management
DPS focuses on refine management and logistics organization, planning layout of lean
manufacturing and inventory coefficient setting. Also, it achieves fully information transmission
and sharing, unifies operation rhythm of supply chain and flattens fluctuation in the supply chain.
DPS could be used by customers, processing and distribution centers, and logistics service parties.
These roles can allocate demands and production capacity flexibly, quickly responding to
customers' demands, and achieving precise distribution service. DPS can help customers guarantee
intelligent, automatic, visual and mobile service in steel supply chain.
Economic Benefits of DPS

Achieving Operational Monitoring of Processing and Distribution Business. DPS is also a

kind of process management, which generates operational standard of process and distribution
supply management after confirming business implementation process, decomposing business
procedures and blocking out process indicator standards. Internet makes us acquire the operational
data and monitor each key point in the supply chain. With the popularization of GIS, we have
designed dynamic route plan of logistics system on the GIS platform without any delay. We also
can accomplish many other functions such as forecasting, warning and reminding of abnormal
inventory, etc. as shown in Figure 3.

Figure 3. Logistic control and warning board in DPS.

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 Promoting Improvements of Business Efficiency and Management Precision. DPS can
greatly enhance overall efficiency and precision management by adopting refine management.
While customers' demands in JIT distribution are met, lean manufacturing could reasonably control
inventory level and guarantee profit. Comparison results are shown in Table 1.

Guaranteeing Refinement of Scene Management Through Modern Logistics Organization.

DPS reasonably arranges loading plan and separation through intellectualized methods, improving
maximum usage efficiency, and reducing waiting time of vehicles. It could inform operational
personnel to load quality and safety requirements. Using the spare time of operational personnel
through planning board, DPS could adjust coil stock and reduce time of locating goods.

Leading Service Ability Improvement for Suppliers in Upstream of the Supply Chain. On
the one hand, DPS helps to make management requirements and standards more precise and
quantitative. On the other hand, suppliers could optimize their own management mode, procedure
and requirements, so as to further meet the requirements of steel distribution center. Then, suppliers
would develop the business cooperation with companies healthily and sustainably.
Table 1. Comparisons with and without DPS.
Before After
Type Operation
implementation implementation
7 pages 1 page
Working out production plan 32 buttons 3 buttons
9 inputs 2 inputs
Business efficiency Time for working out production plan 23 minutes 7 minutes
22 buttons 2 buttons
Making bills of lading
7 inputs 1 inputs
Time for making bills of lading 20 minutes 5 minutes
Loading waiting time 42 minutes 11 minutes
Logistics efficiency
Unloading waiting time 153 minutes 102 minutes
Percentage of prestressing bundle
23% 14%
Inventory optimization package lading bills
Stock preparation coefficient 3.0 2.5

Conclusion
To ensure the normal operation of the supply chain in the steel distribution, DPS is designed to
solve the management problem caused by downstream customers changing their production modes
from order forecast to pull production. By adopting modern logistics and lean manufacturing
concepts, DPS aims to find a better way to solve timely and precision delivery problems for
downstream users. The application of DPS in the field of automotive steel distribution shows that
the overall inventory of supply chain could be reduced with promoting the efficiency of supply
chain and decreasing the overall cost.

References
[1] Honghua-Zhang, Feng-Zhang, Bo-Chen. Cognitive bias and correction strategies in China's
iron and steel logistics informatization construction [J]. Metallurgical economics and management,
2011, 03:32-34.
[2] Hongsheng-Liu. Research on the lean supply chain logistics system of automobile
manufacturing enterprises [D].Wuhan University of Technology, 2013.

446
[3] Bogdanov A. Analysis of Modern Logistics Systems [J]. Association Scientific and Applied
Research, 2014, 3: 54.
[4] Fullerton R R, Kennedy F A, Widener S K. Lean manufacturing and firm performance: The
incremental contribution of lean management accounting practices[J]. Journal of Operations
Management, 2014, 32(7): 414-428.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

A Study on the Influencing Factors of Cosmetic Beauty

Repurchasing Intention

Szu-yuan SUN1,a, Shu-chen CHANG2,b,* and Keng-liang HUANG2,c

1
College of Management, National Kaohsiung First University of Science and Technology, Taiwan
2
College of Management, National Kaohsiung First University of Science and Technology, Taiwan
Email: asunnyy@nkfust.edu.tw, bu0128904@nkfust.edu.tw, cdan@nkfust.edu.tw,
*Corresponding author

Keywords: Cosmetic medical, Perceived quality, Perceived value, Perceived risk, Customer
satisfaction.

Abstract. This study discussed perception of price, perceived quality, perceived sacrifice, perceived
value, perceived equity and satisfaction influence medical center patients repurchase intention. And
discussed perceived quality, satisfaction, repurchase intention are affected by perceived risk. This study
takes the customers of a beauty medical clinic in Hualien County, Taiwan as its research subjects. The
effective sample size is 254 samples. Results showed that perceived price, perceived quality, perceived
sacrifice, perceived value, perceived fairness all have significant influence on customers satisfaction
degrees, which in turn influences repurchase intention.

Introduction
The improvement of educational standards, "the doctor-patient relationship" model also generated a great
change. People stringent on the requirements of medical services increasingly. It must bear the risk of
their own needs checks, and to create excellent business performance in order to enhance the
competitiveness of the medical institutes, we must have good medical equipment, hardware, facilities
and high standard of medical technology, but only through improving the quality of service, in order to
attract the majority of the patient population, but also make them repurchase. This study are to examine
the medical cosmetic beauty clinic patients as an example. Investigate the perceived quality, perceived
price, perceived sacrifice, perceived equity, perceived value and impact of patient satisfaction and
repurchase intention.

Literature Review

Perception of Price Affecting Perceived Value Mediated by Perceived Quality and Perceived
Sacrifice
Ele The internal reference price of consumers would vary with the attention they paid to the product
prices, their awareness and knowledge levels. So, the perceived prices they have would be different from
the actual prices; additionally, the lack of information on perceived price and the difference on
demographics of consumers would also affect the difference between the perceived prices and objective
prices [1]. Their research suggested seven constructs of price, and classified them into two main
dimensionsnegative role and positive role of the perceived price.

448
A Conceptual Model of Extrinsic-Cue Effects on Perceived Quality, Perceived Sacrifice, and
Perceived Value
The conceptual model examined in this study, suggests that quality and sacrifice perceptions mediate
linkages between (a) antecedents of consumers' quality and sacrifice perceptions (e.g., brand, store, and
price) and (b) consumers' perceptions of value. Country of origin is specified as an extrinsic quality cue
and as a moderator variable.

The Impact of Price on Consumers' Perceptions of Quality and Sacrifice

Considerable theoretical and empirical evidence suggests that price is often used by consumers as an
extrinsic product-quality cue. Theoretical rationales underlying an expected positive price-quality
linkage can be based on expected market forces high quality products often cost more to produce than
low-quality products and competitive pressures limit firms' opportunities to charge high prices for
low-quality products. Complicating the extrinsic cue effect of price is that price also is an indicator of
sacrifice [2].
The Impact of Brand and Store on Consumers' Perceptions of Quality
Research evidence indicates that brand names are extrinsic quality cues. Researchers have viewed brand
name as a "summary" construct or a "shorthand" cue for quality because consumers can make product
quality inferences based on brand name. The process can be explained via the "affect-referral" process
discussed by Wright, which suggests consumers do not examine brand attributes every time they make
brand choice decisions; they simplify their decision-making process by basing their judgments on brand
attitudes (summary information) rather than on product attribute information. Empirical test results
reported by [3] indicated significant brand and store treatment effects on consumers' perceptions of
product quality.
Country of Origin as an Additional Extrinsic Quality Cue
Examined the impact of country-of-origin, price, and brand cues on perceived product quality, perceived
risk associated with purchasing the product, perceived value, and likelihood of purchasing. Conducted an
experiment to examine the impact of country of origin cue, the results suggest that consumers'
perceptions of country of origin affect their perceptions of quality, attitude, and purchase intention [4].
Relations between Perceived Quality, Perceived Equity, Perceived Value and Customer
Satisfaction
Satisfaction or dissatisfaction judgment is believed to be formed as a summary of equity/inequity of one's
own outcome relative to the other party's outcome, given input. An unfavorable outcome will be
perceived as unfair and create low satisfaction with service recovery. Donabedian [5] believed that, other
than the quality of medical care, patient satisfaction could measure the interaction among workers in a
medical center, the interaction between patients and workers, and objectively measuring the quality of
medical facilities. Thus, patient satisfaction is a very important index on studies of health and medical
service. This study believed that patient satisfaction was the subjective attitudes from patients after they
received medical services; in addition to the difference patients experienced between the actual and
expected medical service outcome, it might be affected by patients needs at the time. Therefore, patient
satisfaction comes from the experiences and feelings when patients are admitted to medical centers and
their evaluations from subjective attitudes.

449
Risk and Uncertainty in Relations with Perceived Quality, Satisfaction and Repurchase Intention
That risk has a known probability while uncertainty exists when knowledge of a precise probability
is lacking. There are other varieties which would affect repurchase intention, such as perceived risk,
perceived uncertainty. As well as relation between perceived risk with perceived system quality.
Although some authors have implied that dealing with information implies the handling of uncertainty
in a word, it means to handle risk [6,7] take the position that risk and uncertainty are clearly not the
same.

Research Design
Based on the subjective views from aesthetic patients by a questionnaire survey this study attempted to
investigate the effects of perceived quality, perceived price, perceived value, perceived sacrifice
perceived equity customer satisfaction on repurchase intention, as appearing in Fig. 1

Figure 1. The Research Model.

Data Analysis
This study takes the customers of a beauty medical clinic in Hualien County, Taiwan as its research
subjects. This study began on March 25, questionnaires were distributed total of 300, and 243
questionnaires were recovered on April 5, a response rate of 81%.
Measurement mode analysis for each dimension of the confirmatory factor analysis (CFA), the main
objective in the development of an acceptable measurement model, and examination whether the various
dimensions of the individual variables measuring reliability, its data, Cronbachs should be greater than
the ideal value 0.70 (Cronbach, 1951) [8] as appearing in Table 1.
Table 1. Reliability.
Items Cronbachs Alpha
Perceived sacrifice(PS) 0.790420
Perceived value(PV) 0.778391
Perceived quality(PQ) 0.832007
Perceived risk(PR) 0.749222
Customer satisfaction(CS) 0.816028
Repurchase intention(RI) 0.803229
Perceived equity(PE) 0.856974
Perception of price(POP) 0.745544
Perceived sacrifice(PS) 0.790420
Perceived value(PV) 0.778391

In this study, according to the convergent validity of the test criteria, because each aspect of the test
results, all reached significant level, so its loading factor values are up to an acceptable level; in this study,

450
AVE values the order of 0.71, 0.69, 0.67, 0.66, 0.73, 0.72, 0.87 and 0.66, its value are acceptable levels of
AVE (greater than 0.5), in this study, the various dimensions composite reliability (CR) values were
above 0.80 (Fornell & Larcker, 1981) [9], so this study should have better internal consistency reliability
showed in Table 2.
Table 2. Convergent Validity.
Items AVE CR
Perceived sacrifice(PS) 0.705639 0.877685
Perceived value(PV) 0.693407 0.871440
Perceived quality(PQ) 0.666168 0.888433
Perceived risk(PR) 0.657793 0.842565
Customer satisfaction(CS) 0.730848 0.890653
Repurchase intention(RI) 0.715345 0.882828
Perceived equity(PE) 0.874843 0.933244
Perception of price(POP) 0.664892 0.855631

Disscussion
Originally, there is not significant relationship on perceived risk. For the purpose of understanding why
perceived risk is not significant, so I do another analysis between perceived risks and education. The
result shows that perceived risk has significant relationship with level of education.

Mangerial Implication
To achieve market segmentation, practitioners in aesthetic medicine for self-provided patients, besides
facing diverse consumer groups, need to present a professional image, fulfill different consumer needs,
and provide good medial quality and comfortable medical environments as well as abundant peripheral
products at a reasonable price. However, can good medial quality, market segmentation and product
differentiation really increase consumers willingness to revisit and to recommend others to visit?

Conclusions and Future Work

Changing the sampling mode: in order to keep the privacy of the patients, we could only use the
convenience sampling method and ask medical centers to assist us sending out the questionnaires. We
suggest later studies use other random sampling method to decrease the error of results and make them
more representative.
Increasing the study variation: consumers may be affected by culture, society, mental factors, which
were not included in this study structure. We suggest later studies may increase the variation by
discussing the effect of different background factors on consumers repurchase intention.

References
[1] V.A.Zeithaml, L. L.Berry, A.Parasuraman, The behavioral consequences of service
quality. The Journal of Marketing.(1996) 31-46.
[2] D. R. Lichtenstein, N. M.Ridgway, R. G.Netemeyer, Price perceptions and consumer
shopping behavior: a field study, Journal of marketing research. (1993)234-245.
[3] W. B. Dodds, K. B. Monroe, D. Grewal, D. Effects of price, brand, and store Information on buyers
product evaluations, Journal of Marketing Research. 28:3(1991)307-319.

451
[4] M.Wall, J. Liefeld, L. Heslop, Impact of country-of-origin cues on consumer judgments in multi-cue
situations: a covariance analysis, Journal of the Academy of Marketing Science. 19:2 (1991)105-130.
[5] A.Donabedian, The quality of medical care, Science. 200:4344 (1978) 856-864.
[6] T.Laukkanen, Internet vs mobile banking: comparing customer value perceptions,
Business Process Management Journal. 13:6(2007)788-797.
[7] J. P.Peter, M. J.Ryan, An investigation of perceived risk at the brand level, Journal of marketing
research. (1976)184-188.
[8] L.J. Cronbach, Coefficient alpha and the internal structure of tests, Psychometrika.
22:3(1951)297-334.
[9] C. Fornell, D.F. Larcker, Evaluating structural equation models with unobservable variables and
measurement error, Journal of Marketing Research. 18:1(1981) 39-50.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Official Promotion Incentive: A New

Re-estimation and Re-examination
Chen FENG1,a, Meng QIU2,b, Rong KANG3,c,
Dong WANG3,d and Bei-bei SHI3,e,*
1
School of Economics and Management, Northwest University, Xian 710127, China
2
School of Management, Xian Jiaotong University, Xian 710049, China
3
School of Economics and Management, Northwest University, Xian 710127, China
Email: afc452062658@163.com, bqiumeng@stu.xjtu.edu.cn, ckangrong@nwu.edu.cn,
d
wangdongking@yeah.net, epgyky412@163.com
*Corresponding author

Keywords: Officials promotion incentive, Economic performance, Political relationships, Financial

performances.

Abstract. Based on three major theories, the Chinese local officials promotion incentive could be
influenced by economic performances, political relationships and financial performances. However,
there were some researchers focusing on these promotion mechanisms and then they got different
outcomes. This paper achieves the goal for exploring the influence factors of officials promotion by
using OLS empirical test. From collecting the data of Chinese local officials and cities economic
conditions, we find that economic performances factor and political relationships fact can have a
significant effect on officials promotion, but financial performances factor cannot have this effect.
And the experiences and lesson of this research have some reference for exploration of Chinese
local officials promotion incentive.

Introduction
Since the Chinese reform and opening up, officials selection and promotion has been changed from
focusing on political relationships to economic performances. There are plenty of theories
explaining the officials promotion incentive, which can be classified as follow aspects: 1. Economic
performances factor can have a significant effect on promotion (Zhou, 2007; Wang and Xu, 2008;
Yang and Wang et. al, 2013; Yang and Zheng, 2013; Qiao and Zhou, 2014; Luo and She et. Al,
2015), which focuses on probability of local officials promotion influenced by their domination
areas economic development. 2. Economic performances factor cannot influence the local officials
promotion incentive (Landry Pierre, 2003; Tao and Su et. al, 2010; Yao and Zhang, 2013), these
researchers thought that economic development cannot be reflected on promotion aspect, different
local officials may have different reactions when they faced promotion mechanism. 3. Political
relationships factor can have a significant effect on promotion (Yang and Zheng, 2013). 4. Financial
performances can influence promotion (Guo, 2007). Because of different theories explaining this
problem, we will observe economic performances, political relationships and financial
performances respectively, and whether they can impact on local officials promotion significantly
or not, we will find out.

Data Sources and Test

From the previous analysis and previous researches, we can know that there are several factors
impacting the local officials promotion about the issue of China's local officials promotion
incentive, including economic performances, political relationships and financial performances.
Because of the few samples of Chinese province officials, the outcome may have statistical
errors. On the other hand, selecting the Chinese country officials is hard, which can cause difficulty

453
of collecting data. In the end, Chinese city officials are the best samples to analyze the factors of
official promotion incentive. We collect the panel data of city officials from 2001 to 2010 and the
sample size is about 1000. Above Data sources respectively as: Data on Prefectural Party Secretary
of P. R. China related data in 2001-2010, and we through the central government's website, such as
"XinHua", "People's Daily" and other official website gained the related data collected by hand.
In the meantime, in order to analyze the economic performances, political relationships and
financial performances whether can impact on official promotion, we also gather other variables,
such as Cg (officials in the prefecture level city GDP of average tenure); D_g (officials in the
prefecture level city growth and the provincial economic growth difference of average tenure);
rate_g (urban GDP growth rate province GDP growth rate proportion within a term); ave_pg (per
capita GDP growth rate) and brith_rate (the birth rate of the city), which belongs to economic
performances variables. And political relationships variables: party_year (party standing); tuanwei
(whether work in Youth League Committee) and party_edu (whether graduate from Party School of
the CPC ). And financial performances variables: pro_g (the city tax growth rate); tax_g (industrial
and commercial tax growth rate) and reve_g (fiscal revenue growth).Above variables are all
gathered by Chinese City Statistical Yearbook and The New China 60 Years Statistical Data
Collection.
From 2001 to 2010, the number of leader officials of 303 cities is about 3664, including
unqualified data and data of reappointment officials. And the official promotion rates had been
declined from 2001 to 2010. It is shown in Figure 1.

Figure 1. Official Promotion Rates (20012010).

In order to checkout the factors impacting the officials promotion incentive, this paper select the
economic performances, political relationships and financial performances to do empirical study
and empirical analysis. Via the OLS models available:

D=+1A+2B+3C+ (1)

Among them, whether D as a dummy variable of official promotion, A as related to economic

performance variables, B as control variables for political relations, C as fiscal revenue related
variables. We can get the result as follows: From analyzing the previous researches and paper, we
can know the economic performances have the biggest influence on local officials promotion
incentive. As a result, we select firstly economic performances variables by controlling other
variables to checkout their outcome which can be seen by following Table 1.

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 Table 1. Official Promotion and Economic Performances.
(1) (2) (3) (4) (5) (6)
FE FE FE FE FE FE
Cg -0.165*** -0.241***
(-5.53) (-6.08)
D_g 0.200*** 0.340***
(7.15) (8.25)
rate_g 0.0372 0.0272
(1.24) (0.79)
ave_pg -0.0297** 0.124***
(-2.08) (5.27)
birth_rate -0.0296 -0.000696
(-0.91) (-0.02)
N 1053 1053 1053 951 1051 949
Control
YES YES YES YES YES YES
Variables
t statistics in parentheses
="* p<0.1 ** p<0.05 *** p<0.01"

From the above table, we can see that when we controlled other variables, only analyzing the
economic performances variables whether impacting on local officials promotion, which is
significant. To be specific, Cg variable (officials in the prefecture level city GDP of average tenure)
and D_g variable (officials in the prefecture level city growth and the provincial economic growth
difference of average tenure) will significantly improve officials promotion probability (-0.165***
and 0.200***). In the meantime, ave_pg variable (per capita GDP growth rate) will also improve
officials promotion probability significantly (-0.0297**). Such as model 6 indicates that if
increasing per unit of Cg variable, its official promotion probability will be declined by 24.1%;
however, if the GDPs difference between the cities and provinces is bigger, it will improve the
probability of officials promotion more significantly (34%), which is consistent with Chinese
officials promotion mechanism. Moreover, if per capita GDP growth rate increase per unit, its
official promotion probability will be increased by 12.4%.By analyzing from above mechanism, we
can know that if we control other variables, we will find that economic performances can impact
significantly on local officials promotion, which is consistent with previous researches.
So, when we remove the economic performances variables, we will just checkout the political
relationships influences on promotion, because in China's political system, political factors are the
important factors influencing officials promotion, which is a vital standard for officials. Since the
beginning of the Chinese reform and opening up, Chinas top legislators have more and more
focused on officials economic performances, but political factors also have not been eliminated.
From the previous researches, we cannot find many paper researched the political relationships
impacting on promotion, so we will attempt to focus on it. We select whether graduate from Party
School of the CPC as a dummy variable which can replace the relationships between local officials
and central officials or top officials. If local officials have this experience, we can set it equal to 1,
otherwise we can set it as 0. Then, we also select local officials whether worked in Youth League
Committee, if they have this experience, we can set it equal to 1, otherwise, we can set it as 0.
These dummy variables can represent fully Chinese Communist Party playing an important role in
political system and officials promotion mechanism. In the end, we also select the data of
party_year (party standing). To be specific, the outcome is shown in Table 2.

455
 Table 2. Official Promotion and Political Relationship.
(1) (2) (3) (4)
FE FE FE FE
party_edu 0.816*** 0.509**
(3.98) (2.32)
party_year 0.014 -0.009
(0.71) (-0.42)
tuanwei 0.539** 0.590**
(2.13) (2.18)
Control
YES YES YES YES
Variables
N 1043 982 1021 943
ll -444.275 -421.986 -440.074 -399.753
t statistics in parentheses
* p<0.1 ** p<0.05 *** p<0.01"

As the previous outcome, we can know that, political relationships can influence significantly on
local officials promotion. Indeed, the dummy variable whether graduate from Party School of the
CPC can impact on promotion under a 99% level; local officials whether worked in Youth League
Committee can also impact on promotion under a 95% level. However, the officials party standing
cannot significantly impact on it. In the model 4, if officials once studied at Party School of the
CPC, the probability of promotion will increase 50.9%; moreover, if they once worked at Youth
League Committee, the probability of promotion will increase 59%.
If we eliminate the economic performances and political relationships factors, we can observe the
financial performances factor whether impact on official promotion, which has been found that can
have a significant outcome by previous researchers. Because they think that since Chinese tax
sharing reform in 1994, central government has been richer than local governments by gathering
local finance to Beijing. So officials promotion mechanism not only do include promoting local
officials by economic performances, but central government need to observe the officials skills for
managing local finance. Thus, we also checkout the factor of financial performances. The outcome
is shown in Table 3.
Table 3. Official Promotion and Financial Performances.
(1) (2) (3) (4)
FE FE FE FE
pro_g -0.000* -0.000*
(-1.79) (-1.79)
tax_g -0.000 0.000
(-0.03) (0.05)
reve_g 0.001* 0.001*
(1.96) (1.77)
Control
YES YES YES YES
Variables
N 1041 1041 1043 1041
ll -449.458 -451.324 -450.580 -447.865
t statistics in parentheses
="* p<0.1 *** p<0.01" ** p<0.05

As above table indicates, the financial performances of officials cannot impact on promotion
significantly, although the city tax growth rate and fiscal revenue growth rate can impact under a
90% level. And the city of industrial and commercial tax growth rate cannot impact on it. We can

456
see fiscal revenue growth rate can increase 0.1% probability of promotion in model 4. Overall, the
financial performances of officials cannot impact on promotion significantly.
To sum up, controlling the variables respectively, we can see that economic performances and
political relationships can have a significant effect on officials promotion except financial
performances. To this issue, we will merge these variables and factors and observe and checkout the
synthesis outcome. The specific outcome is shown in Table 4.
Table 4. The Factors of Official Promotion.
(1) (2) (3) (4) (5) (6)
FE FE FE FE FE FE
party_edu 0.364* 0.509** 0.387* 0.309 0.354 0.269
(1.91) (2.32) (1.75) (1.23) (1.58) (1.06)
party_year -0.020 -0.009 -0.012 0.021 -0.017 0.017
(-1.20) (-0.42) (-0.64) (0.83) (-0.89) (0.64)
tuanwei 0.284 0.590** 0.318 0.474 0.322 0.468
(1.27) (2.18) (1.14) (1.45) (1.15) (1.42)
Cg -0.256*** -0.262*** -0.265*** -0.274***
(-6.72) (-5.95) (-6.74) (-6.04)
D_g 0.390*** 0.390*** 0.396*** 0.400***
(9.66) (8.43) (9.51) (8.47)
rate_g -0.002 0.041 -0.006 0.037
(-0.07) (1.10) (-0.16) (0.98)
ave_pg 0.138*** 0.135*** 0.138*** 0.136***
(5.95) (5.19) (5.78) (5.10)
brith_rate -0.030 -0.003 -0.022 0.005
(-0.73) (-0.07) (-0.52) (0.10)
pro_g -0.000 -0.000
(-1.12) (-0.76)
tax_g 0.001 0.001
(0.67) (0.65)
reve_g 0.001 0.001
(1.45) (1.52)
Control
NO YES NO YES NO YES
Variables
N 1111 943 996 847 988 839
ll -507.633 -399.753 -375.394 -300.396 -367.027 -293.437
t statistics in parentheses
="* p<0.1 ** p<0.05 *** p<0.01"

Through the analysis of the table, such as model 2 shows that when we controlled the influential
factors of financial income and economic performance on the official promotion, the influence of
political relationship will also impact on official promotion. The central party school graduation
experience will significantly improve official promotion probability (0.509 **); at the same time, if
officials have experience in youth corps committee office, will also improve their promotion
possibilities (0.590 **). From model 4, when "revenue" is under control, officials who will reduce
the region's level of economic development will significantly increase the possibility of its
promotion, when in the regional economic growth level relative to other city in the province's
leading level for every unit, its official promotion probability will be increased by 39.0%, in line
with the central "relative performance evaluation and selecting officials" intuitive experience and
policy purposes; At the same time, officials to reduce the area of each unit growth in per capita
GDP growth, the probability of official promotion will be increased by 13.5%. Finally, when
included in the "revenue" influence, both on the confidence level of 99% to 40.0% and 40.0%
457
respectively. That is to say, in order to get a promotion, officials will significantly increase the
economic performance and construction of their own jurisdictions, and this project for political
career will significantly increase the probability of its promotion.

Conclusions
By analyzing and testing the factors of influence of local officials promotion incentive, we find that
economic performances factor and political relationships fact can have a significant effect on
officials promotion, but financial performances factor cannot have this effect. Therefore, when
officials based on their own political purposes and incentive region economic growth, the first
choice is necessarily promote regional investment growth. In the meantime, they should also focus
on political relationships development.

References
[1] Zhou, L., A, Economic Research Journal, J. 07(2007) 36-50. (In Chinese)
[2] Wang, X, B., Xu, X, X., Management World, J. 03(2008) 16-26. (In Chinese)
[3] Yang, R, L., Wang, Y., Nie, H, H., Management World, J. 03(2013) 23-33. (In Chinese)
[4] Yang, Q, J., Zheng, N., The Journal of World Economy, J. 12(2013) 130-156. (In Chinese)
[5] Qiao, K, Y., Zhou, L. A., Liu, C., China Journal of Economics, J. 03(2014) 84-106. (In Chinese)
[6] Yao, Y., Zhang, M, Y., Economic Research Journal, J. 01(2013) 137-150. (In Chinese)
[7] Luo, D, L., She, G, M., Chen, J., China Economic Quarterly, J. 03(2015) 1145-1172. (In
Chinese)
[8] Landry, P., The Copenhagen Journal of Asian Studies, J. 17(2003) 841-864.
[9] Tao, R., Su, F, B., Lu, L., Zhu, Y, M., Management World, J. 12(2010) 13-26. (In Chinese)
[10] Guo, G., Political Research Quarterly, J. 60(2007) 78-390.
[11] Chen Y., H. Li, and L. Zhou., Economics Letters, J. 88(2005) 421-425.
[12] Eckhard, J. American Economic Review, J. 90(2000) 1508-1519.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Risk Management of Superior Award in International Investment

Arbitration in the Method of Categorization

Xia DING
China University of Political Science and Law

Keywords: Risk management, International investment arbitration, Categorization.

Abstract. Due to the inconsistency of interpretive path and applicable methods, the award made by
the international investment arbitral tribunal cannot naturally be recognized by both parties, which are
always the risk of disqualification and annulment. To control the questioned risks of the award, the
arbitral tribunals shall make superior award which could be recognized by both parties as far as
possible. Explaining the superior award in the method of categorization is able to analyze a series of
awards under the procedure or substantial issues of same type or the procedural or substantial contents
of specific issue arguments on the individual cases. The application of the method could proceed from
two angles: The micro categorization means the content of arbitral award should be divided into the
superior part and inferior part in terms of the reasonableness of the individual award. The former
has the value of being invoked while the latter should be excluded. The macro categorization studies
the categorization of a series of awards in the range of the same legal relationship, and the separation
of superior and inferior award makes its appearance. However, the analysis of award through the
empirical method may further determine the inherent characteristics of superior award the integrity
of the logic clues and the hierarchy of the argument should be put more emphasis on the argument,
and adequate and rigorous demonstration should be made combined with specific facts of the case. If
the pro-portion of superior award in the investment arbitration award can be improved, the possibility
that the parties finally accept the award will be increased, and the risk of disqualification and
annulment could be controlled.

Introduction
Nowadays, international investment arbitration has become the main way to settle the international
investment disputes. The quantity of cases International Center for the Settlement of Investment
Dispute has accepted has exceeded 600. However, the issue relevant to the quality of international
investment awards has become the important topic of the development of international investment
law system, initiating a series of discussion in both academia and practical circle.
In fact, the final awards play decisive roles in respect to the quality of awards in international
investment arbitration. The arbitral tribunal should analyze all the controversial points in details and
differentiate legal liability of both parties. While it may cause any party to apply for the annulment
procedure even the award to be annulled finally if an award failed to argue clearly and sufficiently, an
award which has a clear consecution and sufficient argument could convince both par ties
spontaneously and enable itself to go into force. If the situation of annulment occurs frequently, not
only the reasonable expectation of investor and host country to settle investment disputes by the
procedure of international investment arbitration could be affected, but also the risk of instability of
investment dispute settlement mechanism increases.
In the practice of international investment arbitration, the quality of awards, the spontaneous result,
relies on the judgment of arbitral tribunal in individual case. In academic field, discussing quality of
awards needs analysis to reel silk from cocoons. Therefore, clarifying the applying path of superior
awards in international investment arbitration and deducing the element of making superior awards
aim at inducing legal standards and extract superior awards. The guideline which could be abstracted
from awards effectively lead arbitral tribunals to avoid the phenomena of arguing unclearly and
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insufficiently and then control the risk relevant to annulment of awards and instability of international
investment arbitration mechanism.

Superior Awards in the Method of Categorization

The essence of superior awards, aims at analyzing a series of awards under the procedural and
substantial issues of the same type, i.e., procedural or substantial contents in the light of specific
controversial points. In fact, it is just as looking for a needle in a haystack as pursuing which award
belongs to superior case in substantive cases. Also, it is not helpful to merely discuss whether the
argumentative structure in some certain award is superior. Therefore, it is necessary to limit the
category before conclude superior cases. The method of categorization should be adopted when the
author tries to explore the category of superior cases. The role of cases categorization could be divided
into micro-scale categorization and macro-scale categorization.
Superior Part and Inferior Part in Individual Award
On a micro level, the part of legal reasons and arguments often involve procedural or substantial
contents in individual award in the field of international investment arbitration such as Indirect
Expropriation, National Treatment, Fair and Equitable Treatment and Exception Clause et cetera. It
would be unfair to treat different issues as the same or limit to fixed paradigms when judging the
reasonableness of individual award. According to article 52 of Washington Convention, annulling
awards could have several reasons. There might exist superior argumentative parts even in the awards
which have been annulled by ad hoc committee. After all, the situation arbitral tribunals totally lack
reasonable analysis hardly happy while partial reasonable awards appear frequently. The
categorization on a micro level, means the content of individual award should be separated into
superior part and inferior part rather than super and inferior award in an absolute sense when
estimating the reasonableness of awards. The superior part in awards should be invoked while the
inferior part excluded in future cases. On the procedural or substantial issues of the same type, arbitral
tribunals cite the analytical process of some certain issue instead of the whole award.
The research object in this part specifically refers to supporting points in the range of procedural
and substantial issues of same type in awards. The essence of superior awards bases on the supporting
points under procedural and substantial issues. The supporting part in terms of specific controversial
point is not the whole contents of individual award, but evaluating the superior and inferior quality
based on the research of categorization. The author makes a comparative study of the superior and
inferior parts on the issue of Fair and Equitable Treatment, Expropriation, Essential Security
Exception Clause et cetera rather than adopt the ab-solute opinion when clarifying the superior parts
as example of LG&E v. Argentina.
Superior Award and Inferior Award
On a macro level, unlimited phenomena of superior award or inferior award in the absolute sense
are rare when making a historic view of the international investment arbitration award. It is not biased
only through analyzing the process of all award results formed by the same type of issues in a series of
cases to draw the conclusion whether the award is superior. The studies are carried out on relevant
awards collected by the author. The objects of study are not all contents of specific awards, but the
argumentation section of multiple awards under the same type of procedural or substantial issues.
Therefore, the macro-scale categorization should compare the argumentation process of completely
the same or opposite award results of the fact under the same type of issues in different cases to
summarize and induce in the same range of legal relationship and determine which award belongs to
the superior one and inferior one.
At present, there are some categorization studies on specific issues (such as fair treatment of equity,
exception clauses issue) in academic circle. It is a pity that such discussions were mostly tasted, and
stopped at the micro and static-level of classification of procedural or substantial issues, failed to

460
refining the analysis approach of superior award within the range of same legal relationship on the
macro and dynamic level. In this section, the study is carried out on the superior award, and the
generation process of the judging legality in the international investment arbitration shall be sorted
out from the macro and dynamic level, aiming at inducing the legal standards and refining superior
award.

Definition of Superior Award in International Investment Arbitration

Connotation of Superior Award in International Investment Arbitration

Under the same type of substantial or procedural issues, all awards do not have a substantial impact on
the international investment arbitration field without exception. In the substantial or procedural range
of the same established award, only the internally high-quality established award made by the judge
with occupational prestige is enough to maximize the effectiveness, which is called the superior
award by the author.
The superiority of superior award refers to that the award of the arbitral tribunal should comply
with four requirements: first, rendering an award according to the applicable law of the treaty
recognized by the parties; second, rendering an award in accordance with the applicable law of
arbitration rules determined by the parties; third, arriving at a reasoning process of the final
conclusion by reasonably detailing the award; fourth, appropriately citing established awards. Among
them, the more important is the reasonable law reasoning and appropriate invoking of established
awards.
The superior award has two characteristics: first, the arbitral tribunal must detail the reasoning
arguments while reasonably exercising the discretion. The explanation of the arbitral tribunal can
effectively fill the gap in the national obligation regulations related to the investment treaty. The
established award with detailed arguments provides a valuable reference to the trial of international
in-vestment arbitration cases. Only when the high-quality award without objection emerges
constantly, the international in-vestment legal system can be expected to improve. Second, the
established award can be invoked appropriately. On the basis of rational argument, the subsequent
award made by the arbitral tribunal through invoking established awards is more convincing, and can
be widely recognized. So based on this path, when the arbitral tribunal makes an award in the
subsequent cases, it should take the initiative to bring into correspondence with superior award, which
facilitates the parties to understand and accept the decision, and promote the improvement of
international investment arbitration mechanism.
Beneficial Impacts of Superior Awards in International Investment Arbitration on Risk
Control
Superior awards effectively ensure the publics reasonable expectations of the fairness and credibility
of the arbitration process, so that the parties will consciously obey the conclusion of the arbitral
tribunal, helping the parties, especially the host country to execute the award. Meanwhile, the superior
award has a pivotal leading role in the subsequent cases.
Only by invoking superior awards, the host country is enough to ensure the effective
implementation of the award, and it is especially true when the decision is unfavorable to the host
country. This is because the implementation of the award matters the public benefits of the nationals
of the host country, and the inferior award may cause the host country failing in or hindering the
implementation. In the relationship between the host country and investors, the investors are in
protected status, and reserve the right to terminate the business activities in the host country. In
contrast, the rights and obligations determined by the host country and the home country of investors
through the conclusion of a treaty are long lasting and stable. During the conclusion of international
investment treaty, the permanent commitment made by the host country must use the superior award
rendered by the arbitral tribunal as an effective guarantee.

461
 It is possible that the parties may apply for annulling the superior award. Even the award annulment
mechanism is launched, the inherent superior features in the award (the arbitral tribunal appropriately
invoked the established award, and made detailed and reasonable explanation of the reasoning
process of the case ) are sufficient to effectively promote the ad hoc committee to arrive at
high-quality evaluation of the award on this basis. For example, in the Glamis Gold v. United States
case in 2009, the NAFTA arbitral tribunal thoroughly discussed the leading role of superior awards of
international investment arbitration in subsequent cases, and pointed out that the superior award with
reasonable and detailed reasoning effectively ensures the credibility of the arbitration mechanism.

The Demonstration Effect of Superior Awards concerning the Risk Management

On a macro level, under the same substantive or procedural issue, those awards with clear
demonstration, rich arguments and appropriate references to the established awards should be seen as
superior awards; at micro level, those parts with precise arguing and rigorous reasoning in the given
award belong to the superior part of the awards. This paper would take the demonstration
concerning the applying of fair and equitable treatment by the tribunal of LG&E v. Argentina case
for example. Generally, the demonstration and internal logic of this section is evident from the
tribunal's presentation of the factual findings, clear analytical framework, and application of the
framework to the facts of the dispute.
To begin with, the tribunal established factual findings regarding the guarantees to investors set
forth in the Gas Law of the host state and its implementing regulations that had been violated. The
violations of the Gas Law and its implementing regulation, ultimately provided the factual grounding
for the tribunal's conclusion. After stating the factual underpinnings of the present dispute, the
tribunal cogently presented the analytical framework and standard for interpretation required of fair
and equitable treatment pursuant to the BIT. As the BIT does not expressly define that treatment, the
tribunal first examined the BITs preamble and then the decisions of prior ICSID tribunals, in
accordance with Article 31 of the Vienna Convention on the Law of Treaties. From this BIT language,
the tribunal derived the following broad standard of fair and equitable treatment, which including the
stability of the legal and business framework Thus far, the tribunal has established a broad standard
of fair and equitable treatment from the language of the BIT.
Then the tribunal reviewed prior ICSID and NAFTA tribunal decisions in order to present two
more specific components of fair and equitable treatment that have evolved as internationally
recognized standards: investor expectations and transparency. According to the tribunal, this
interpretation is supported by the BIT and in the decisions of the aforementioned tribunals. The
tribunal established the specific components of the broad framework of fair and equitable treatment
by first considering the BIT provisions and subsequently adding more specific meaning through the
evolution of jurisprudence constante. Furthermore, the tribunal applies the framework of fair and
equitable treatment it has established to the particular facts of the dispute. These expectations are
successfully met in the tribunals conclusion that Argentina violated the BIT provisions of fair and
equitable treatment. Therefore, the reasoning and conclusion in this part are sound and credible.

Conclusion
To sum up, the superior awards could be emphasized and invoked by subsequent arbitral tribunal
via comparison and analysis on the method of categorization, thus the model effect of superior awards
or superior parts could be enhanced. In this way, aiming to the risk management of the large-scale
appearance of inferior awards, the subsequent arbitral tribunals could clarify arguments and invoke
accurately in awards as much as possible to get support and recognition from both parties and public.

Acknowledgement
This research was financially supported by the Youth Research Program of China University of
Political Science and Law.

462
References
[1] UNCTAD, Recent Treads in IIAs and ISDS, IIA Issue Note, No.1 2015 [EB/OL].
http://unctad.org/en/PublicationsLibrary/webdiaepcb2015d1_en.pdf, 2015-02-19/2015-03-25.
[2] Dolzer, R. Indirect Expropriations: New Developments? [J]. New York University
Environmental Law Journal, 2002, 11: 13.
[3] LG&E Energy Corp., LG&E Capital Corp. and LG&E Intl Inc. v. Argentine Republic, ICSID
Case No. ARB/02/1, Decision on Liability of 3 October 2006, para.181.

463
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Analysis of Vertical Integration Internal Motivation

Factors about Coal Enterprise
Xiao-chen DU
1
College of Economics and Management, Shandong University of Science and Technology,
Qingdao 266590, China.
2
Shandong University of Finance and Economics, Jinan 250014, China
Email: duon@163.com

Keywords: Coal enterprise, Vertical integration, Internal motivation factors, Structural equation
model.

Abstract. The healthy and orderly development of coal enterprises caught our attention. It is not only
related to Chinese energy security closely, to some extent, but also guarantee the healthy
development of our national economy. In this paper, through analyzing the internal motivation factors
and main influence factors of enterprise development, the key factors of the coal enterprise vertical
integration are explored. Structural equation model is constructed to simulate research. By exploring
the influence factors of our nation coal enterprise vertical integration, the level of optimized research
of China's coal enterprise vertical integration can be further improved.

Introduction
All Since the 20th century, supply ability of Chinese coal has been enhanced rapidly. However,
compared to the expanding capacity of coal, the coal industry actual demand is weakened. When it
comes to the coal consumption in 2013, it is down 2.9% in 2014. In 2015, coal demand still showed a
trend of decline, it would cause accumulation of excess capacity, and restrict the development of coal
enterprises seriously. To solve the overcapacity of the coal industry and promote the development of
coal enterprises, the State Council issue About the coal industry under the state council to resolve the
excess capacity to achieve to erase the opinions of the development on February 5th 2016. At
present stage, development of coal industry is researched based on background of excess capacity,
which has an important guiding significance for the optimization of coal enterprises (Mingli Wu,
2015). The optimization of coal enterprise is not only related to the external environment condition,
but also connected with the development of coal enterprise internal factors, therefore, exploring
internal influence factors and relationship between the various factors of coal enterprises
optimization, which has important guiding significance for optimized development of the coal
enterprise.
However, according to previous research, (Q Geng, 20112; Q Yang, 20123), its lack of
systematics to analysis the model factors. All of these factors lead to the build (construction) model
for research results that coal enterprise expand problem of vertical unclerly. In this paper, the key
factors of coal enterprise vertical integration are researched, through the internal motivation factors
and the main influence factors of enterprise development. Structural equation model was constructed
in order to simulate research, explore the path and method of Chinese coal enterprise vertical
integration, and improve the optimized research of Chinese coal enterprise vertical integration.

Methods
Structural equation model is polybasic statistic technology which combines factor analysis with path
analysis, and it have advantages in quantitative study of interaction relationship between multivariate.
In this paper, structural equation model is built, which covers model building, model fitting, model
evaluation and adjustment of model.

464
Model Building
The relationship between internal factors of coal enterprise vertical integration is analyzed. In the
process of coal enterprise vertical integration, possible internal influence factors are explored. Based
on the analysis above, the internal factors model of coal enterprise vertical integration is constructed.
Further, the rationality of the theoretical model is tested.
Model Fitting
On the analysis of structural equation model, model fitting is aims to make the sample covariance
matrix model close to the covariance matrix of connotative model as much as possible. The maximum
likelihood method is adopted to test the fitting testing of coal enterprise vertical integration model of
the internal factors.
Model Evaluation
We should have an evaluation about rationality and availability of the model which has been built.
Firstly, the relationship between the parameter and the preset models is reasonable whether or not.
Secondly, we should modify the model by use of standardized residual, standard error, the
expectations change parameters, all kinds of fitting index, 2 and modified index. Next, on the basis
of relevant theories or hypotheses, one or several reasonable prior model should be proposed. Finally,
we test model which only has two factors for each time, and determine whether the measurement
model is reasonable. Last but not least, all the factors are merged in order to make prior model
formed, and checkout as a whole.

Research Hypothesis
It is more advantageous to reduce transaction costs that coal enterprises choose vertical integration
and reduce production cost through economies of scale and economy of scope, and the market
competitiveness of coal enterprise is improved. From inside the coal enterprise, the influence factors
of vertical integration mainly has four aspects: enterprise control ability, conditions of coal resources,
enterprise innovation ability, enterprise money management ability. In this paper, according to four
aspects, we study the eleven assumptions:
The Control Ability of Coal Enterprises (A Wang, 2014)
Hypothesis one: The extension of coal industry chain and management cost of coal enterprise are in
an inverse proportion.
Hypothesis two: The extension of coal industry chain and operation efficiency of coal enterprise
assets are in a direct proportion.
Conditions of Coal Resources (Dong Wang, 2013)
Hypothesis three: It has a direct proportion relationship between reserves of coal resources and the
extension of industrial chain.
Hypothesis four: The variety of coal resources plays a significant influence on the expansion of the
industrial chain.
Hypothesis five: It has a direct proportion between the Grade of coal resources and the expansion
of the industrial chain.
Enterprise Innovation Ability (H Wang, D Ling, S Yu, 2012)
Hypothesis six: It has the direct proportion between the human resources quality of coal enterprise
and the expansion of the coal industry chain.
Hypothesis seven: It has the direct proportion between the product market of coal enterprise and
the expansion of the coal industry chain.
Hypothesis eight: It has a direct proportion between the investment level of coal enterprise and the
expansion of the coal industry chain.

465
Enterprise Capital Management Ability (LU Shi-Zhong, 2015)
Hypothesis nine: With the enhancement of coal enterprises profitability and ability to invest, the
expansion of the coal industry chain has been improved significantly.
Hypothesis ten: With the increase of coal enterprise's assets, financing capabilities and expansion
of the coal industry chain has been improved significantly.
Hypothesis eleven: With the increase of coal output of coal enterprises, the expansion of the coal
industry chain has been improved significantly.

Construction of Coal Enterprises Longitudinal Development Internal Influence Model Based

on the Excess Capacity
Structural equation model can analysis the confirmatory factor, and integrate general statistical test
method and path analysis, so it is widely applied to the analysis of causal relationship between
variables.

Explained Variable
Table 1. Vertical scaling degree measure of coal enterprise.
First grade indexes Secondary index Measurement index Index code
Coal industrial chain
Vertical integration
longitudinal industry node CD
industry chain length
number
Longitudinal
Coal industrial chain
integration The width of the vertical
longitudinal industry KD
expansion degree integration industry chain
companies
of coal enterprises
Coal industrial chain
The thickness of the vertical
longitudinal industry scale HD
integration industry chain
index

Explanatory Variable
Table 2. Indicators of internal factors of vertical expansion in coal enterprise.

First grade indexes Secondary index Measurement index Index code

resource reserve Recoverable coal reserves N1

coal resources
resource grade ash N2
categories of coal coal N3
Operation efficiency Asset turnover N4
control capability
administrative cost Management cost ratio N5
scientific research input Technology innovation cost N6
innovation ability quality of human resources Percent of enterprise
N7
technology personnel
market occupancy Product market share N8
profitability return on total assets N9
Money management
skills economic strength total assets N 10
mining scale coal production N 11

Verification of Research Hypothesis of the Coal Enterprise Vertical Integration

Using structural equation model verifies the internal factors influences. The results show that the
internal factors include three aspects: management ability, Investment capacity, resource factor.
These three factors are the first-order factor, and variable standard load factor that final observation is
T>1. But the innovation factor in absolute value is less than 2, and it reflects the standard load factor
unobvious.
466
Table 3. An estimated coefficient that the influence between internal factor and the coal enterprise vertical integration.
Standard
Scale load T statistic Probability
deviation
capacity of
The coal industry chain
< management and -0.173 -4.103 0.034 ***
extension
control
The coal industry chain
< innovation ability -0.075 -1.121 0.104 0.213
extension
The coal industry chain Money
< 0.593 7.039 0.130 ***
extension management skills
The coal industry chain
< resource factor 0.677 10.926 0.093 ***
extension
capacity of
operational efficiency of
< management and -0.105 -1.203 0.063 0.116
assets
control
capacity of
Management cost ratio < management and 1.000 ***
control
market share < innovation ability 1.000 20.394 0.035 ***
scientific research input < innovation ability 0.596 5.793 0.052 0.029
Money
profitability < 0.874 23.912 0.013 0.103
management skills
Money
total assets < 1.000 ***
management skills
Width of the industrial Industrial chain
< 0.385 5.935 0.076 ***
chain extension degree
length of production
Industrial chain
chain < 0.620 17.236 0.059
extension degree
The thickness of the Industrial chain
< 0.739 10.285 0.046 ***
industrial chain extension degree
The human resources < innovation ability 0.514 8.194 0.061 ***
Money
Coal production < 0.829 16.942 0.102 ***
management skills
coal < resource factor -0.194 -2.496 0.094 0.015
resource grade < resource factor 0.963 15.913 0.127 ***
coal reserves < resource factor 0.393 1.386 0.031 ***
Remark: *** means to P less than 0.001
Through the analysis of the empirical results, we can get eleven hypothesis testing results of
internal factors affecting of coal enterprise vertical integration as following:

467
 Table 4. Hypothesis testing results.
Verification result
No. Hypothesis (the hypothesis is
whether supported)
If large storage resources and the industry chain extension also will
H1 yes
increase, they were positively correlated.
If high taste of coal resources and degree of big industry chain extension,
H2 yes
they were positively correlated.
Industrial chain extension degree can significantly affected by varieties of
H3 yes
coal resources.
The coal industry chain extension can increase or decrease with the
H4 discretion of the enterprise assets operation efficiency, they were positively yes
correlated
The coal industry chain extension degree is low. Some influence factors are
H5 caused due to the rising cost of enterprise management, they were negative yes
correlated.
If the coal enterprise human resources have good quality, the extension of
H6 no
the industry chain will also increase, they were positively correlated.
Coal enterprise human resources have good quality, it can reflect that the
H7 no
enterprise scientific research level is high, they were positively correlated.
The higher the coal product market share, the higher the degree of industry
H8 no
chain extension, they were positively correlated.
Coal enterprise financing scale and industrial chain extension degree are
H9 positively correlated, the bigger assets of the enterprise, the stronger ability yes
of financing, the opposite is also true.
Coal enterprise profitability and industry chain extension degree are
H10 positively correlated yes
,corporate profitability reaction is the investment capacity of an enterprise.
Coal enterprises of coal production and industrial chain extension degree
H11 were positively correlated, enterprise production reflects the level of the yes
ability of corporate finance.

Summary
In this paper, based on the theoretical analysis of coal enterprise vertical integration, structural
equation model is built, and the main internal factors of coal enterprise vertical integration is
analyzed. In view of building of structural equation model, we can draw following conclusions after
model is analyzed empirically through making using of sample data.
It shows positive correlation between the reserves and resource grade of coal resources factors and
the extension of industrial chain, and the extension of industrial chain can be affected significantly by
coal variety.
Operational efficiency reflects the management control ability of the industry. The higher assets
operations efficiency, the lower the management cost, so the coal industry will have the greater the
extension.
The influence of technology innovation ability and coal industry chain extension is not significant.
On the one hand, the reason is that the reason is that the relevant technology of the coal industry chain
has been relatively mature; on the other hand, the reason is that lack of technological innovation
ability. Its still in the process of extensive management.
The factors of ability to invest including asset size, profitability and coal production and the
extension of coal industry chain are in an inverse proportion.

Acknowledgement
Supported by university science and technology project of shandong province(Grant No. J12LN35)

468
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[1] M L Wu. The development of the coal enterprise transformation under the new normal thinking
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of Convergence Information Technology, 2012,7(17):450-458.
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Financial And Economic Problems, 2013, 357(08):108-112.
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Applications, 2012, 6(19):573-582.
[7] Lu Shi-Zhong. Research and Practice of Enterprise-level Risk Management Architecture for
Large-scale Coal Enterprise Group [J]. Journal of Hebei University of Science & Technology. 2015,
(02):272-284.

469
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Factorial Analysis on the Implementation of Land Retirement

Strategy in China

Yun-fei CHEN*, Su-chun WU

Wuhan Polytechnic University Economics & Management College, China
*Corresponding author

Keywords: Land retirement strategy, Factor, Implementation.

Abstract. It has been a common view that implementing the strategy of Enforcing the grain planting
capacity of land and exploring the land retirement in the reformation on supply-side in China, but
there are some problems in the implementing land retirement strategy under the household
responsibility system now. In the article, well give an analysis on the influencing factors of
implementing land retirement strategy and the corresponding countermeasures in China after the
affection on drainage, land capability or ecology of land retirement and its typical foreign experiences
in strategy.

Introduction
Ordinary, land retirement is an arrangement that planting in the first and the third year while retiring in
the second year on the same land. Nowadays, the land retirement strategy can also be arranged
seasonally or cultivated every some years or planted from one crop to another crop or planted for
nourishing plants. It is validated theoretically and practically that land retirement not only improves
the drainage and the nourishment of land which raises the quality and yield of crops [1] but also makes
the environment better [2].
In China, the land retirement strategy is an old farming system that can retrospect to Dynasty West
Zhou [3] while the land is fully used every year due to the limit of grain yield security in modern
times. Today, the grain production faces the fact that the increasing of floor price, the decreasing of
ceiling price and the lack of agriculture resources. At the same time, the grain production allowance
faces the pressure of limited financial subsidy and the upper limitation of WTO in agriculture of our
country. Under this background, the strategy of Enforcing the grain planting capacity of land is
presented in No.1 policy document of Central Committee of the CPC and the land retirement strategy
of planting from one crop to another crop will be explored in China [4].
There are such obstacles as the highly distributed land resources, the income of peasants etc. when
land retirement strategy is put into practice under the background of Land family contract
responsibility system. So, discovering the influencing factors of implementing land retirement
strategy and give the corresponding countermeasures is very important and practical.

Main Influencing Factors and Obstacles of Implementing the Land Retirement Strategy in
China

Main Influencing Factors of Implementing the Land Retirement Strategy in China

Grain Yield Security Strategy. For a long time, due to the large population and scarce arable land,
to ensure the grain yield security has been always the top priority in China. And so, on the one hand
our country adheres to the "1.8 billion mu arable land red line", on the other hand encourages
intensive cultivation of land, which makes the land not being good rest and maintenance while a large
number of application of chemical fertilizers and pesticides.

470
 Land Retirement Compensation. The current rural land system in China is Land family contract
responsibility system which inevitably makes the farmers, the supply side of the land, will ask the
Government, the demand side of the land, for the same income (harvest) caused by the land
retirement.Therefore, land retirement compensation becomes an important factor of implementing
land retirement strategy.

The Employment of Farmers. The per capita arable land in China is only about 1.4 mu. In the
province of Zhejiang, Jiangsu and other places, the number is even less than 0.9 mu, the land
retirement strategy implementing on such little arable land will inevitably bring about the problem of
the employment of farmers from the retiring land. Thus, while implementing the land retirement
strategy, how to guarantee the employment of farmers from the retiring land becomes the other factor
of implementing land retirement strategy.

Land Retirement Arrangements. To implement land retirement strategy, if there are not good
corresponding arrangements of the land retirement pattern, also cannot achieve the desired results,
which becomes another factor of implementing land retirement strategy.

Main Obstacles to the Implementation of Land Retirement Strategy

Land Fragmentation. Under the rural land system of Land family contract responsibility
system, although the land transfer has made great progress, land being cultivated fragmently is still
serious in China. No proper scale land operation and thus no guaranteeing of normal earnings of the
agricultural operators has become one of the main obstacles to the implementation of land retirement
strategy.

The Ability and Level of Financial Subsidies. On the one hand, land retirement compensation in
our country is restricted by the ability of financial subsidies; on the other hand, our overall level of
subsidy to agriculture is also restricted by "aggregate maintenance support" (AMS) commitments in
the "Agreement on Agriculture" in WTO, which China had accessed to it in 2001. All these constitute
an obstacle to the implementation of the strategy of land retirement.

Peasants Transformation in Employment. Under the background of China's New Normal

economic situation, The ability to provide enough peasants transformation in employment another
obstacle to the implementation of the strategy of land retirement.

System Design of Land Retirement. Land retirement strategy in our country is still a new thing
and so there is no mature system design on it about such aspects as the land retirement objects and
conditions, the land retirement proportion and period or the land retirement subsidy and compensation
standards, etc.

Agricultural Echnology Promotion. For farmers, how to do crop rotation and raise nourishing
plants in the implementation of land retirement are new challenges for them, the agricultural
technology promotion has become a new obstacle to the implementation of land retirement strategy.

Legal Protection. Currently, the rights of farmers of land retirement lack legal protection. How to
ensure the income (crop), the employment of land retirement farmers through legal protection and
thus eliminating their concerns is also one of the obstacles in the implementation of land retirement
strategy.

471
Analysis on the Ways of Implementation of the Land Retirement Strategy in Our Country

The Typical Foreign Experience

The Diversity and Rationality on the Objectives of Agricultural Land Resource Protection.
The diversity and rationality on the objectives of agricultural land resource protection, which was
raised in 1977 by the US economist including the guarantee of grain yield security, survival and
development of local agricultural industry, a good environment , orderly and efficient use of urban
and rural land and so on, is still being widely accepted to measure the conceptual framework of
farmland protection objectives.

The Complementary on Legal Protection and Policies. The United States is relatively mature in
the implementation of land retirement strategy for the laws of their land and land retirement strategy
are relatively comprehensive and systematic. Early in the 1930s, the US government formulated the
"water and soil conservation and domestic production rationing law" to improve the severe ecological
problems caused by over-exploitation. According to statistics, there are already 12 laws on land
conservation, land reserve, agricultural insurance, etc. that are related to land retirement strategy and
land now.
Meanwhile, the US government also adopted relevant policies, programs, projects technical means
etc. to guide or constraints or impact the land use, resource planning & management and protection of
agricultural land in areas. All these make the legal protection and the policies complement each other.

Fully Play the Role of Market Mechanism. To get the aim of farmland preservation consistency,
the interests of the United States federal government, local governments, landowners and farmers of
various action subjects are realized by giving full play to the market mechanism adjustment.

Pay Attention to Public Participation. In US, the farmland protection legislation system and
policy planning is formulated by negotiation, that is to say , from bottom to top. Besides, US
legislative bodies and governments encourage and ensure public participation in the development of
agricultural land protection laws and regulations. All these make the land retirement strategy easy to
set up and supported by the population [6].

Change the Grain Yield Arrangement and Get Compensation or Give Subsidy to Relative
Farmers. In 1996, to cut down the storage rate of rice, the Japanese government took such land
retirement strategy as decreasing the planting areas of rice to 787,000 hectares on the one hand and
giving 70,000Yen/ha subsidy for the farmers joining the land retirement strategy or getting 100,000
Yen compensation form those of no joining on the other hand [7].

The Differential Compensation Standard for Different Regions. In US, in the process of
implementation of land retirement strategy, the farmers can offering the lowest price they can accept
according to the opportunity cost and cost-benefit. The compensation standard can even be specific to
each household [8].

Suitable Land Retirement Strategy Arrangement. There are different land retirement strategy
arrangement from country to country. In Israel, that is 1 of every 7 years but in UK, that is 1 of every 3
years, which was the famous traditional Norfolk Rotation System. That is, the land is divided to such
3 parts as the winter wheat one, the spring wheat (or soybean) one and retirement one in some village,
then the 3 parts forms a land-use circle [9].

472
The Way of Implementation of the Land Retirement Strategy in China

Diversity and Reasonableness of Agricultural Land Resources Conservation Goals.

Considering the fact of large population, serious difference between rural and city habitants and
consistent development pressure in China, learning the experiences of other countries , such as the
United States, Japan and so on, we may establish such diversity and reasonableness of agricultural
land resources conservation goals including as grain yield security, increasing farmers income and
environment protection, etc.

The Complementary on Legal Protection and Policies. To rebuild the land retirement strategy is
a new thing for China, we may learn such countries as the US, Japan, etc., making laws or policies on
land conservation, land reserve, agricultural insurance, etc. that are related to land retirement strategy.
At the same time, according to the opportunity cost and cost-benefit, setting up such subsidy or
compensation measures as giving subsidy for the farmers joining the land retirement strategy or
getting compensation form those of no joining.

Suitable Land Retirement Strategy Arrangement. Associated with the history practices of land
retirement strategy, learning from the experiences from US, Israel, UK and other countries, we may
research on the suitable land retirement objects and conditions, the land retirement proportion and
period or the land retirement subsidy and compensation standards, etc.

Fully Play the Role of Market Mechanism. Learning from the United States and other countries,
we may fully play the role of market mechanism to get the pool efforts from the United States federal
government, local governments, landowners and farmers of various action subjects to get the aim of
farmland preservation consistency in the process of action of land retirement strategy.

Advices on the Polices of Implementation of the Land Retirement Strategy in Our Country

The Reasonable Strategy on Grain Yield Security

According the fact of the increasing of floor price, the decreasing of ceiling price and the lack of
agriculture resources, we may make such reasonable strategy on grain yield security as cutting down
the production of maize and other grains on the one hand, raising the specialties of regional rural
products on the other hand. And so we may also avoid the domestic competition of same industry or
quality and translate the advantage of resources into industry or products or competition one.
But the reasonable strategy on grain yield security do not mean the giving up of the strategy, we
should focus on the aim of Enforcing the grain planting capacity of land taking the land retirement
arrangement of rotation or planting the nourishing plants mainly.
Strengthen the Market Construction on Land Transfer and Farmer Employment
According the fact of serious land fragmentation, we may strengthen the market construction on land
transfer, which is associated with its information, by fully playing the role of market mechanism and
actively promote the moderate scale management of land.
For the farmers employment, we should also strengthen the market construction on the farmer
employment by giving information of employment and training on increasing the farmers abilities.
Make the Special Law System on New Occupational Farmers to Give Policy Support
The implementation of land retirement strategy is associated with the training of new occupational
farmers because the moderate scale management of land and the spreading of agricultural
technologies should be done by them.

473
 For this reason,, we should put the making of special laws or policies on new occupatioal farmers
into the schedule as early as possible to provide the rights security for them in employment, training
and policy support, etc [10].
Strengthen the Policy Expection of Government on Land Retirement Strategy
It is significant important for the government to guide the mechanism and socialism under the
background of mechanism of rural production and the socialism of rural subsidies. We should
strengthen the protection of domestic & foreign market and make the reasonable policy expection of
purchasing, storage and compensation or subsidy on rural products including main grain plants to lay
good foundation for the implementation of land retirement strategy.

Acknowledgement
This research was financially supported by the Hubei Social Scientific Foundation (No: 2015173);
Hubei County Economy Development Research Centre (No: HBXY2016201)

References
[1] Ye Yilong, Xu Meifang, Chen Tingjian, Huang Guozhen. The affection of storing water to the
soil fertility: a test in fallow rice land. J. Water Science Development. 4 (2002) 478-483.
[2] Li Yi, Yan Cheng, Ma Hongyang. Analysis on the benefit of economy and ecology after lnad
retirement in Hexin town, Changchun city. J. Economy and Trade Practice. 9 (2015) 86-88.
[3] Luo Tingting, Zou Xuerong. Design on mechanism conversion of the leaving land
uncultivated, land abandoned, returning the grain plots to forestry and fallow. J. West Forum. 2
(2015) 40-46.
[4] Information on http://finance.sina.com.cn/china/2016-01-27/doc-ifxnzanh0149054.shtml.
[5] Zhang Junbiao, Zhang Lu, He Ke. Thinking and Advices about how to promote and
implementate the land retirement strategy. J. Investigation on the 3R in Hubei. (2015) 124-128.
[6] Zhang Helin. The US farmland protection mechanism and its reference and inspiration for our
country. J. Earth Technology. 6 (2014) 4-11.
[7] Zen Yurong. Japanese Enhance the rotation of fallow rice land. J. Taiwan Agricultural
Research. 3 (1996) 42.
[8] Liu Jiayao, Lu Zhixiang. The US land retirement protection plan and its reference. J. Business
Research. 8 (2009) 134-136.
[9] Wang Chengwei, Leisure culture and the origin of the "collective invention" in the UK, first
ed., Tourism Education Press, Beijing, 2014.
[10] Shan Wuxiong, Luo Maiqin. Study on the training of new occupational farmers. J. Anhui
Agricultural Science. 19 (2014) 6499-6501.

474
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Study on Establishment of Eco-industrial Chain Based on Eco-efficiency:

A Case Study of Tourism

Yan JIN1,2, Rong FU2

1
Forestry tourism research center, Central South University of Forestry and Technology, 410004,
Changsha, Hunan, China
2
Changsha Commerce &Tourism College, 410116, Changsha, Hunan, China

Keywords: Ecological efficiency, Ecological tourism chain, Tourism industry.

Abstract. The Chinese traditional economic development model, resulting in China's rapid economic
development, but at the same time, also to the natural resource and environmental system in China
caused irreversible damage. At present, we urgently need to transform the economic development
pattern, and the eco-efficiency of eco-industrial chain is based on certain regional basis, Enterprise
simulation of the natural environment in this area, reduce pollution and destruction. But the
traditional research of industrial chain concentrated in the enterprise organization, logistics and other
factors, but neglected the subjective factors, at the same time, the general research on ecological
industry concentrate on the agricultural and industrial areas, while ignoring the tertiary industry which
is gradually play a great effects. This paper is based on the tourism industry as the representative,
attaching importance to the subject characteristics of enterprises, study the formation of the ecological
industry chain based on ecological benefit. Since put into effect the reform and opening-up policy,
China's economic have been great development, but the traditional industrial developmental pattern,
bring the economic development and at the same time, also causes a series of problems for example
the waste of resources, energy shortages, environmental pollution, ecological destruction. This allows
us to rethink our country economy development, seeking the path which meeting with the rule of
natural development. The natural law of development in the final analysis is recycling and renewable,
so to build a fusion of upstream and downstream enterprises of the ecological industry chain is the
inevitable trend of development. Generally we think that ecological benefit and ecological industry
chain is for industrial development, but with the development of the tertiary industry and the influence
of society deeply, but also is of great significance to construct the ecological industry chain of the
tertiary industry, this study use the tourism as the representative, research on how to travel between
enterprises based on ecological benefit to build tourism industry ecological industry chain.

Introduction

The Eco-industrial Chain

The development mode of eco-industrial chain is new developmental pattern, linear model of
development that is from resources to products, the finally is pollutant and the emission of waste,
which not only brings great pressure to the regeneration and degradation of natural systems, it will
also bring huge waste. The eco-industrial chain imitate the way of natural ecological processes of
material circulation. Through the enterprise each other's resources as well as the final products and
ancillary products such as the formation of upstream and downstream enterprises as the link, through
mutual cooperation to achieve circular flow of resources in economic development in the region, the
best use of resources, reducing emissions of pollutants [1].
The Eco-efficiency
The Eco-efficiency is the standard of evaluate the economic development to the importance of
environmental protection. The Eco-efficiency is not completely only concerned about the

475
environment, but also for the development of ecological and economic. This concept shows, overall
social progress and development not only depends on the development of economy but also on the
coordination in the environment, It is depend on both. As a standard of value judgment, The occur of
the Eco-efficiency is in order to promote enterprise in this time to conduct and decision to give
consideration to the environmental capacity, at the same time, under the pressure, to promote the
development of ecological industry chain as a decomposer enterprises.
The Structure of Eco-industrial Chain
The eco-industrial chain is similar to the nature of the food chain, existence of producers, consumers
and decomposers. And the three of them are not independent, but contact with each other and
dependence. Matter and energy transfer among producers, consumers and decomposers and form a
closed system. The eco-industrial chain is the imitation of the cycle, in a certain area, building
materials processing industry, manufacturing, production, utilization of waste decomposition such as
different levels of enterprises, these enterprises cooperation form industrial clusters. The enterprise
according to the different position in the region and in different links in the production to assume
similar to the producers, consumers and decomposers role. At the same time in a certain area. The
eco-industrial chain is not the only one, with the increasing of the regional products and the
cooperating of business, it will form a plurality of ecological industry chain intersect each other [2].

The Study of The Eco-industrial Chain Reform

Because of the eco-industrial chain for economic and environmental benefits of attention, the current
study for the ecological industry chain focused on the ecological industry chain of different enterprise
organization structure, the formation of the ecological industry chain of technical requirements, as
well as the government role in the formation of the industry chain, but in the practice of the current
industrial park, only pay attention to these factors can not be effective circulation in favor of industry
chain in the enterprise each other raw materials and resources, research based on ecological benefit,
pay attention to the main feature of the enterprise, is of great significance to the study of ecological
industry chain.
The Traditional Study
The study mainly focuses on the ecological industry chain enterprises of different types of enterprise
scale etc for the organizational factors of the eco-industrial chain formation. Organizational factors
that if the enterprise quantity and types are not adapt to each other, will lead to excessive competition
industry chain upstream and downstream enterprises collaboration or insufficient, eventually lead to
rupture of the industrial chain. Technical factors mainly refers to the enterprise the by-product of
cleaner production, waste resources, waste, recycling and reuse of business circulation and
technology. Technology plays a key role in the formation of the ecological industry chain, but ignore
the enterprise as a subjective initiative organization for technology attitude and whether the
technology has a significant impact. The ecological industry chain is composed of different
enterprises in the industrial chain in the involved, so the interests of different groups, so that the
government policy is very important. The government department policies and regulations for
enterprises, incentive and regulation, administrative intervention, taxation means, directly influence
the formation of ecological industry chain and stability.
The Effects of Ecological Benefit for Ecological Industrial Chain Formation
Research on ecological benefits for ecological industrial chain formation different from traditional
research in the ecological benefit is to realize enterprise is the basic and the most important factor in
the formation of the industrial chain, the mutual trust and cooperation contribute to the raw materials
and resources flow. While recognizing the subjectivity of enterprises, as well as the economic
attributes. Ecological benefits through to the enterprise to mobilize the main form of two kinds of
different incentive mechanism, the waste can be used to the greatest extent between different
476
enterprises. Enterprises to pursue economic interests, at the same time, the asymmetry of information
between different enterprises based on the industrial chain upstream enterprises, the only by-product
price in the price range within a certain range, so as to realize the governance and special waste
possibility of dirty corporate profits and reuse of enterprise production. The internal mechanism to
maximize mutual compromise between the utility enterprises. The degree of development of industry
chain in the downstream enterprises will directly affect the enterprise can accept the high prices affect
waste, high economic efficiency of enterprises, resulting in the formation of bound to each other, and
eventually to the formation and stability of the development of ecological industry chain.
The Path of the Eco-efficiency to Promote Ecological Industry Chain
The ecological benefit as a standards for measure the degrees of development, It promote the
formation of ecological industry chain from the aspects of enterprise by the greatest degree to
mobilize the main.
The ecological benefits promote the ecological industry chain "decomposition" emergence and
development. Different enterprises based on ecological benefit pursuit, degradation will take the
initiative to seek its product waste and recycling. But because the production boundary businesses,
produce and development expedites the emergence of specialized pollution control and waste
recycling enterprises in such circumstances. at the same time, these specialized enterprises and
upstream enterprises close cooperation, at the same time to improve production technology and
process of, prompting the formation of ecological industry chain.
Ecological force to strengthen cooperation between enterprises. Ecological benefits will make the
ecological industry chain emerge decomposer, at the same time these decomposers are asset
specificity is very strong. The formation of traditional industry chain is often on different processing
products, the processing can be for the same type of business, "decomposers" enterprises because of
the special equipment, location specific, employee specificity makes the upstream and downstream
enterprises of mutual dependence will get maximum strengthening. But in the open economic
environment, enterprises will inevitably face a lot of uncertainties, which require more production
enterprises and "decomposers" enterprises to strengthen cooperation so as to form a stable ecological
industry chain.
Ecological benefits in order to strengthen cooperation between enterprises by various ways. In
certain area, the decomposers in the ecological industry chain is for "producer". At the same time in
order to deal with the changing environment, enterprises also need to continue to strengthen
cooperation, in such circumstances, the enterprises in industry chain will form a large range of
"alliance", on this basis, mutual cultural values of permeability between enterprises and different
union utility will let enterprises to reduce speculative behavior in a large extent, thus has formed the
stable state of ecological industry chain.

The Formation of Ecological Industry Chain in Tourism Industry

The tourism industry has a low pollution, low carbon naturally, but with the development of tourism
industry, influence and ecological environment of tourism destination is also increasingly apparent,
some behaviors of wastewater, waste gas, waste by-product from the development of the tourism
industry and tourists also caused irreversible damage to the ecological environment. Construct the
ecological industry chain for ecological tourism industry has become the inevitable choice for
sustainable development of tourism industry.

The Transformation of the Development Model of Tourism Industry

Construct the tourism industry chain for ecological industry ecological is essentially the
transformation of the development pattern of tourism industry. Re-knowing the side product bring
from the tourism consumption and development process, the tourism resources exploited into tourism

477
products and then tourism waste emissions on the environment impact will eventually become the
closed cycle regeneration system of tourism resources.
The Structure of the Tourism Ecological Industry Chain
Tourism industry is including travel, transportation, catering, hotel and tourism management from the
tourism resources to destination management in short. Broadly speaking, it is mainly studied that
including the farming industry and the media of traditional architecture and other aspects of the
industry. But the processing enterprises to construct ecological tourism industry chain, we must also
set up the enterprises that can be recycled recyclable tourism resources. Adding the environmental
protection departments of tourism industry, the industrial structure of tourism industry is formed as
shown in fig. 1:

The tourism ecological

industry chain

manufacturing Production The decomposition

enterprise enterprise of the enterprise

Direct service
enterprises of tourist environmental service
tourism enterprise of tourism

Figure. 1. The structure of tourism ecological industrial chain.

In the ecological industry chain of tourism industry, the environmental protection service
enterprises is very important in the formation of recycling system. production enterprises and
production enterprises which produced in the process of production and consumption of waste,
degraded via environmental service enterprise, eventually make it back into to the tourism industry in
its development process, its decomposition type as shown in table 1:
Table 1. Decomposition Types.

Type Manufacturing The Decomposition of the

Produce Waste
Enterprise Enterprise

Catering The leftover food With the establishment of the

The exhaust emissions of the bus decomposition and
Traffic
and private car environmental protection
Content
Shopping The package of tourism product enterprises to form a specific
The waste such as magazines, asset.
Entertainment
newspapers

The Behavior of Enterprises to Construct Ecological Industry Chain

The construction of tourism industry ecological industry chain is not only depend on tourist
enterprise, but also the closely cooperation between different enterprises, formed between the
upstream and downstream enterprises of resources flow. The upstream enterprises must nurture and
protection of the scenic area, such as the cultivation of forest resources, at the same time, In the choice
of the resources, we must actively promote use the traditional resources, such as clean coal, and make
full use of renewable resources such as wind and solar energy. In the process of product tourism

478
products, it will reduce the destruction of the ecosystem in the source to use small low impact on the
environment pollution resources. It must give the properly education for consumers in order to control
and constraint behavior and reduce the effect on resources. The most important is establish the
environmental protection enterprises in order to let the production of waste discharge can be smoothly
into the downstream environmental protection enterprises and waste disposal. In order to realize the
flow, the government carries out the corresponding policy to support the formation and the stable
development of industry chain [3].

The Role of the Formation of Ecological Industrial Chain of Tourism Industry

The essence of tourism ecological industry chain is the division of labor, they will put all kinds of
waste and by-products produced in the process of decomposition to reenter the circulation process of
tourism products, production, so the enterprise is the key factor for the formation of the industrial
chain, and in order to establish the ecological benefit, not only pay attention to the province's
economic benefits, pay more attention to the environmental benefits, and through the incentive and
restraint mechanisms of inside and outside, the ecological benefits can also affect the final economic
benefits to the enterprise, this is the place that ecological philosophy can play a role.

The Ecological Benefits of Enterprises Produce Activity, the Ecological Industry Chain
Expand
Generating a chain is need the members enhance the activity, the concept of ecological within its area
of enterprises to establish a long-term and common development concept, focusing on its own
development circumstances, also create opportunities for the upstream and downstream enterprises
and value. Because of the ecological idea, enterprises must carry out their own wastes, but because the
boundary of enterprise business, the enterprise deal with the waste that will bring the enterprise not
economic behavior. But in some enterprises on the industrial chain, some resources or by-product is
unavailable, but for some business it is the production of raw materials. At the same time as the two
kinds of enterprise scale expansion, its raw material and the resources will be expanded, it will attract
more enterprises in the region, while the enterprise increasing, the scope will be its business
expansion, we will contact more closely, the network within the region and symbiotic chain will
generate, the ecological industry the chain will be more stable [4].

The Ecological Benefit to Urge Enterprises to Generate Innovation Factor, the Ecological
Industry Chain Develop Stably
Ecological benefit constraint the upstream and downstream enterprises, it will cause the prices can
fluctuate in a certain range, in this case, downstream of the ecological service enterprises will benefit.
In this case, a certain range of area breeds innovation factor or continuous innovation of enterprises,
active factor will be strengthened, the ecological industry chain has been link closer, gravitational
unceasing enhancement, the ecological industry chain will be develop stably.

Conclusion
At present, the mode of economic need change, the formation of the ecological benefit of ecological
industry chain based on the industrial chain, the enterprises set up the concept of eco-efficiency, not
only from the outside to make the ecological benefits of business and the interests of the whole society
is consistent, in the enterprise, in order to achieve the enterprise's economic profit, it also can make its
active and upstream and downstream enterprises to cooperate, to explain to the waste and
by-products, thus reducing the impact on the environment
But at present, we must also recognize that practical eatable the ecological industry chain in a wide
range is very difficult, it need high technical requirements to the ecological service enterprises, and
need to form a cluster of industries, to a certain size, but also because specific ecological service

479
enterprise assets, also will bring adverse effects on the folk capital investment. Therefore, we must
eatable experimental base in a certain range, through the establishment of standardized ecological
industry chain, the government needs to support for the ecological industry chain at the end of the
environmental protection service enterprises, so that the ecological industry chain from scratch, and
gradually expanded, the industrial structure of our country to upgrade the overall.

References
[1] Zhi-peng Xu, Xiao-lin Guo, Study on ecological tourism industry chain of low carbon economy
under the Swort analysis. The construction of Lao-qu. 2011 (10)22-40.
[2] Guang-feng Wang. The formation of the ecological benefit of ecological industry chain based on
theoretical and empirical research. Study the economic development and the revitalization of
northeast old industrial relationship. 2003 (10)18-26.
[3] Yan-shuang Li, shu Jiang yu. Research on analysis the factors and management measures of the
ecological industry chain stability. Journal of Hebei University of Technology. 2008(5)32-45
[4] Zhao-hua Wang, Jianhua Yin. Study on the structure model of ecological industry chain in the
ecological industrial park. Journal of Guilin Tourism Vocational College. 2013(8)25-37

480
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Intercity Railway Passenger Transport Service Quality Evaluation

Method Based on Passenger Satisfaction
Ying-gui ZHANG, Qing-yi LIU*, Ding-you LEI, Xin-ping XU and Jing-ze ZHAO
School of Traffic & Transportation, Central South University, Changsha Hunan, China, 410075
*Email: 2291006427@qq.com

Keywords: Intercity railway, Passenger transport service quality, Fuzzy comprehensive evaluation,
Passenger satisfaction.

Abstract. Intercity railway is the most effective means to solve intercity traffic problems, and
passenger satisfaction is closely related to intercity railway passenger transport service quality.
Thus, a reasonable evaluation method is conducive to the improvement of intercity railway
passenger transport and further to improve passenger transport service quality. First, introduce
intercity rail passenger satisfaction philosophy, build intercity rail passenger satisfaction conceptual
model. Then, combining with intercity railway passenger transport characteristics and service
requirements, an evaluation index system for intercity railway passenger transport service quality
based on passenger satisfaction is put forward. Also, a fuzzy comprehensive evaluation algorithm
and a related example are both given. The results show that the proposed method can reasonably
evaluate passenger transport service quality and excavate and analyze potential factors which are
helpful to improve passenger transport service quality.

Introduction
With the development of high-speed railway passenger dedicated line, railway corridors with high
standards and huge capacity are gradually building into a network in China, and intercity railway is
becoming an important direction of railway construction in the future, which is also the most
effective means to solve the intercity traffic problems. A reasonable intercity railway passenger
transport service quality evaluation method is vital for improving passenger satisfaction to promote
the rapid development of intercity railway.
Many scholars have carried out lots of basic and applied research work on passenger service
quality. Li-li JIAO, Lei SA and etc. analyzed urban rail transit passenger service quality evaluation
problem [1-2]; Xiao-jun ZHENG and etc. discussed city bus system passenger satisfaction
evaluation method [3-4]; Ya Yang and Qing-dong ZENG constructed a railway passenger transport
service quality evaluation index system [5-6]. On the basis of above research work and
achievements, well design an intercity railway passenger satisfaction concept model and an
evaluation index system for intercity railway passenger transport service quality based on passenger
satisfaction. Then, well put forward a fuzzy comprehensive evaluation algorithm to measure
intercity railway passenger transport service quality. A specific example is also given to analyze and
validate such method.

Intercity Railway Passenger Transport Service Quality Evaluation

Intercity Railway Passenger Satisfaction Concept Model
Intercity railway passenger satisfaction is the feeling degree of personal pleasure or disappointment
origin from passengers when intercity passengers compare practical perception effect or result with
the expected value of intercity railway passenger transport service.

481
 Passengers
Perceived quality
complain
Passenger
Perceived value
satisfaction

Expected quality Passenger loyalty

Figure 1. Intercity railway passenger satisfaction concept model.

In the Fig.1, we can know that there are six implicit variables in such concept model which can
be transformed into a questionnaire by layers of decomposition.
Evaluation Index System for Passenger Transport Service Quality
There are various influence factors about the intercity railway passenger transport service quality
such as train running speed, departure interval, train crowded conditions during rush hours, train
running stability, convenient facilities, getting on or off the train, train punctuality. Thus, such
evaluation index system for intercity railway passenger transport service quality has many
characteristics such as complexity, hierarchy and comprehensive. As shown in Fig.1, taking
passenger satisfaction as the target layer (the first level) and other five implicit variables as the
second level, and considering intercity railway passenger transport characteristics and its service
requirements, an evaluation index system with four layers and fuzzy indexes for intercity railway
passenger transport service quality based on passenger satisfaction is shown in Table 1. This has
been mentioned in LI-li Jiaos paper. American Customer Satisfaction Index (ACSI) model created
by Fornell and other experts.
Table 1. Evaluation index system for passenger transport service quality.
First
Second index Third index Forth index
index
Train running speed
Train departure interval
Punctual-quick Time of the first and last train
Train punctuality
Line setting rationality
Crowded condition during rush hours
Clean-Comfortable Train running stability
Clean in station hall, platform, toilet, etc.
Getting on/off the train (channel, staircase)
Order-security
Safety protection facilities
Perceived
Quality(
 )
Subway security facilities (quantity, speed)
Automatic ticket vending machines (layout, quantity)
Automatic ticket machines (layout, quantity,
Passenger
Facilities sensitivity)
transport
Escalator (quantity, operation)
service
Guide sign
quality
Convenient facilities (public telephone, toilets, etc.)
Station-train Noise (station, train)
environment Advertisements (content, quantity and beauty)
Service Information service (voice broadcast)
management Current fare
Perceived
- Passengers feel about cost performance
Value(V)
Passengers Complaints
-
complain(C) Accuses
Passenger - Direct willingness
Loyalty(L) Indirect willingness
Passenger - Overall satisfaction degree
satisfaction(S) Accomplishment required level

Quality(
 )
Expected
- Achieve the expected level or not

482
 This has been done by Xiao-jun Zheng. As shown in Table 1, there are 4 levels and 27 indexes in
such evaluation system. And some of these indexes are quantitative while others are difficult to
describe quantitatively. Therefore, a suitable for multi-level comprehensive evaluation method for
these qualitative and quantitative indexes is the key of intercity railway passenger transport service
quality evaluation.

Fuzzy Comprehensive Evaluation Algorithm

Fuzzy comprehensive evaluation method is based on fuzzy mathematics, and fuzzy indexes can be
quantified by constructing fuzzy sets/subsets with fuzzy transformation principles [7]. Also, the
comprehensive evaluation for each index is determined by means of comprehensive evaluation on
the factors of which are not clear and not easy to be quantified. The method is suitable for the index
system of intercity railway passenger transport service quality evaluation based on passenger
satisfaction. Thus, the fuzzy comprehensive evaluation algorithm for the index system about
intercity railway passenger transport service quality evaluation problem is shown as below:
Step1: Initialization. Input values of all parameters and construct factor set and evaluation set.
The factor set is the set of evaluation index system of intercity railway passenger transport service

service quality. Also, the evaluation set is V={,   }.

quality, and the evaluation set is used to measure the level of intercity railway passenger transport

Step2: Ensure weight vectors which can be determined by a questionnaire survey.

Step3: Establishment the membership matrix which can be calculated by formal 1 according to
above questionnaire survey and relative statistical data.
  
  
=
  
(1)

where  represents the membership degree for a class of fuzzy subsets from certain factor  .
Step4: Multi-index fuzzy comprehensive evaluation. With a suitable fuzzy synthesis operator,
fuzzy weight vector A and fuzzy relationship matrix R synthesis can be calculated by formal 2 in
order to get the fuzzy comprehensive evaluation vector B.
  
  
 =   =     
=     (2)
  

where  represents that the rating object from the overall perspective on the evaluation of the
degree of fuzzy subset elements  .
Step5: Ensure final fuzzy comprehensive evaluation value which can be weighted by above fuzzy
comprehensive evaluation vectors.
Step6: Output final fuzzy comprehensive evaluation results of intercity railway passenger
transport service quality and end such evaluation algorithm.

Instance Analysis
Taking passenger transport service quality evaluation of certain intercity railway as an example, we
apply above method put forward in the paper to evaluate its service quality.

 ={v ,v ,v ,v ,v ), respectively, indicating, very dissatisfaction(VDS), dissatisfaction (DS),
Intercity railway passenger transport service quality is divided into five levels, namely by

general satisfaction (GS) more satisfaction(MS), the very satisfaction (VS), whose weight
coefficient is 0.1, 0.3, 0.5, 0.7,0.9. Forth index ( ), third index ( ), second level index(R)
483
 Based on the statistics data of 200 questionnaires, the membership matrix R (There are 20
indicators data of such index system, other following 7 indicators data in shown in matrix C.) is

According the questionnaire survey, the weight coefficient (A) of the intercity railway passenger
transport service evaluation indexes is 0.143, 0.229, 0.2, 0.229, 0.2, 0.4, 0.33, 0.27, 0.6, 0.4, 0.138,
0.172, 0.172, 0.138, 0.172, 0.207, 0.5, 0.5, 0.5, 0.5
Fuzzy comprehensive evaluation matrix is weighted to get the result of fuzzy comprehensive
evaluation, as shown below

    
$0.107 0.055 0.118 0.353 0.4382
# 1
#0.087 0.184 0.053 0.291 0.3861
R ! = #0.045 0.071 0.049 0.36 0.4751
#0.041 0.093 0.046 0.384 0.44 1
# 0.05 0.163 0.082 0.377 0.3681
"0.035 0.187 0.03 0.405 0.3450

According to the passenger weight method to get the average value of the two indicators is as
follows: quick, clean and comfortable, order and safety, facilities and equipment, station and train

={0.235, 0.118, 0.206 and 0.147, 0.118, 0.176}

environment, service management}={8, 4, 7, 5, 4, 6}, by computing the weights are as follows:

3 =  3 ={0.063, 0.115, 0.415, 0.359, 0.066}(3 = 3 )

Fuzzy comprehensive evaluation results are obtained:

Table 2. Satisfaction survey.

 V V V V
Perceived
- - - - - -
quality
Perceived
- 14 9 11 106 60
value
Complaints 27 32 21 66 54
Passengers
complain Accuses 9 13 14 34 104
Direct
8 13 97 48 34
willingness
Passenger
loyalty Indirect
28 41 26 62 43
willingness
Overall
satisfaction 14 27 24 58 77
Passenger degree
satisfaction
Accomplishmen
7 23 28 25 117
t required level
Expected
- 10 17 21 83 69
quality

Calculate the number in Table 2, satisfaction weight is as follows:

484
 6 6 6 6 6
$ 0.07 0.045 0.055 0.53 0.3 2
#0.135 0.16 0.105 0.33 0.27 1
# 1
0.045 0.065 0.07 0.17 0.52
# 1
C = # 0.04 0.065 0.485 0.24 0.17 1
# 0.14 0.205 0.13 0.31 0.2151
# 0.07 0.135 0.12 0.28 0.3851
#0.035 0.115 0.14 0.125 0.5851
" 0.05 0.115 0.14 0.125 0.5850

According the questionnaire survey, the weight coefficient (A) of the intercity railway passenger
transport service evaluation indexes is :{-, 1, 0.6, 0.4, 0.5, 0.5, 0.5, 0.5, 1}

0.063 0.115 0.066 0.359 0.415

$ 0.07 0.045 0.055 0.53 0.3 2
# 1
0.099 0.122 0.091 0.266 0.37 1
R=#
# 0.09 0.135 0.308 0.275 0.1931
#0.053 0.125 0.13 0.203 0.4851
" 0.05 0.085 0.105 0.45 0.3450

The weighted average value of the two indicators is as follows: perceived quality, perceived
value, Passenger complaints, Passenger loyalty, Passenger satisfaction, expected quality} = {8, 6, 5,

The weights are  = {0.25, 0.188, 0.156, 0.125, 0.156, 0.125}, respectively.
4, 5, 4}

B = A R ={0.07, 0.103, 0.113, 0.353, 0.361}

Step5: B*V9 =0.6664
Step6: The result is 0.6664 between 0.5 and 0.7, in favor of more satisfied.
For the results above, the subway passenger service needs some improvements. First of all, in the
peak road congestion situation, the number of passengers unsatisfied is larger, wed improve the
capacity of the subway, peak hour passenger congestion caused by the compartment congestion, we
should propose a flexible organization plan. Secondly, convenience facilities unreasonable location,
including the public telephones, ATMs, newspaper sales, toilet and so on. The quantity should be as
much as possible. The automatic teller machine is arranged in the ticket place, newspaper sales
should be set in a station etc.

Conclusions
The subway passenger satisfaction evaluation objectively reflects the existing problems, and put
forward relevant suggestions. In view of this situation, the next should proceed in the actual
improvement of passenger satisfaction, such as the designed subway operating map and the
scientific guidance system, improving according to the actual situation, in order that we can
disperse the passenger.

Acknowledgments
The work described in this paper was supported by grants National Natural Science Foundation of
China (No.71501190, No. 71371193).

485
Reference
[1] Li-li Jiao, Yong Neng Xu, Shijun. Submitted to Journal of Chongqing Traffic University (2012).
In Chinese.
[2] Lei SA. submitted to American Society of Civil Engineers (2010).
[3] Xiao-jun Zheng, Ming-fang Huang. Submitted to Traffic Science and Technology and
Economy (2013). In Chinese.
[4] Diab, E.I. submitted to Transportation Research Part A (2012).
[5] Xiao-yu Qi, Ya Yang. Submitted to Traffic Science and Technology and Economy (2011). In
Chinese.
[6] Qing-dong Zeng, Xin-ping Yan. submitted to ICTIS (2011).
[7] Ya-qing Jiang, Nana Tian,Si-jia Zhang. Submitted to Advanced Materials Research (2010).

486
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

To Set up the Basic Platform of Enterprises Independent Innovation

Based on Lean-Flexible Thinking
Tian-ming XIAO*
Fujian University of Technology, Fuzhou Fujian, China
Email: xtm-9@163.com

Keywords: Independent innovation, Lean, Flexible.

Abstract. In order to raise the efficiency of enterprises independent innovation, it is necessary to

set up the basic platform of enterprises independent innovation. Lean-Flexible Thinking can
effectively improve the efficiency of enterprises independent innovation based on the important
characteristics of Lean-Flexible Thinking. It is analyzed from four aspects including the
establishment of Lean-Flexible enterprise culture, building of Lean-Flexible technology innovation
team, improvement of enterprises technology management mechanism and implementation of
dynamic planning and control.

Guidelines
Lean Thinking was put forward by James P. Womack and Daniel T. Jones in 1996 [1]. Lean
thinking has five basic principles including defining value, value stream mapping, flow value ,
pulling and perfection [2]. At present, the application of Lean Thinking has been expanded from the
initial auto production to multi fields. The academic literature offer numerous examples of firms
that have achieved significant performance improvement as a result of implementing Lean Thinking
[3]. If the flexibility of thinking can be furtherly improved, the innovation ability of Lean Thinking
will be furtherly improved.
Lean-Flexible Thinking is formed by injecting Flexible Thinking into each cell of Lean Thinking.
Flexible Thinking makes each cell of Lean Thinking become vivid and can actively travel to broad
thinking space , find creative inspiration multidimensionally, break the old rules and build new
regulations which can adapt to the current situation, have the ability to flow together with time and
change things which cant keep up with the time, take the initiative to care for subordinates. Then,
the thinking angles, thinking breadth, thinking width, innovation ability, adaptability, problem
solving ability of Lean-Flexible Thinking is more excellent than Lean Thinking. For the
construction of the basic platform of enterprises independent innovation , Lean- Flexible Thinking
has a special advantage.

The Important Characteristics of Lean-Flexible Thinking

Pull
Lean-Flexible Thinking absorbs and inherits the advantages of Lean Thinkings "pull" concept and
emphasizes on the concept of " task pull the process" the same as Lean Thinking, so that the process
of every work has a clear purpose, the efficiency of each working process is improve and the
customer satisfaction are raised with Lean-Flexible Thinking. Furthermore, the waste, such as
excess production, is eliminated. That is to say, the work results which are not required are avoided
by the application of Lean-Flexible Thinking.

*
Author brief introduction: Tian-ming Xiao ( 1973 - ), female, the Han nationality, Fujian University of Technology, professor, Doctoral student of
Chongqing University, research on direction for management science.

487
Detailed
Lean-Flexible Thinking is a kind of thinking mode which pays great attention to the details. Lean-
Flexible Thinking can find solution to the problems from extremely open thinking space and carry
out them carefully, meticulously and earnestly. Every step in the application must be required for
the completion of the task. The quality of every work step is the foundation of the next work step.
Every department and everyone in the organization is responsible for the protection of the final
work quality.
Refined
Lean-Flexible Thinking takes the concept of "Strive for excellence and continuous improvement"
and keeps the pursuit of perfection the same as Lean Thinking. Lean- Flexible Thinking has the
spiritual foundation of continuous improvement with a breakthrough. Lean- Flexible Thinking takes
"zero waste", "zero defects" and "zero failure" as the goal. Compared with Lean Thinking, Lean-
Flexible Thinking takes more emphasis on smart, open, multi-dimensional, flexible state of mind.
Lean- Flexible Thinking strives to solve the problem or achieve the goal by flexible, comprehensive,
scientific methods and not subject to regulatory restrictions.
Adaptable and humanized
Lean-Flexible Thinking is a highly dynamic thinking mode which has the advantages of flowing
with time. Lean-Flexible Thinking attaches great importance to objective changes caused by the
time flowing and takes an objective and developing view on the development of the work.
Compared with Lean Thinking, Lean-Flexible Thinking takes more emphasis on the adaptability,
the innovativity and the work details.
Lean-Flexible Thinking is also a humanistic thinking mode. Lean-Flexible Thinking greatly
respects the reasonable demand, special features and psychological feelings of the object of
management and customers. Lean-Flexible Thinking calls for the application of humanized
measures and methods. Compared with Lean Thinking, Lean-Flexible Thinking is more concerned
about the needs of employees and improve the motivation and innovation ability of staff.

Lean-Flexible Thinking can Effectively Improve the Efficiency of Enterprises Independent

Innovation
Firstly, Lean-Flexible Thinking integrates and innovates multidimensionally, optimizates process
from multi angles, improves the pull flow details dynamically, breaks through scientifically by
taking the customer demand, organizational or individual goals as the driving source. Lean-Flexible
Thinking not only eliminate the hard push completely, but also achieve a flexible pull with the
advantages of Flexible Thinking, so that the success rate is improved effectively.
Secondly, Lean-Flexible Thinking pay attention to the detailed application of lean thinking, such
as daily application and personal application of Lean Thinking. The details of work will be
improved by Lean-Flexible Thinking more comprehensively.
Thirdly, Lean-Flexible Thinking keep the pursuit of simple. On the one hand, Lean-Flexible
Thinking keeps the pursuit of simple by lean. Lean-Flexible Thinking focuses on the application of
a series of Lean methods to eliminate all waste, such as repetitive process, unnecessary time waiting,
cumbersome and nonvalue added activities and so on. On the other hand, Lean-Flexible Thinking
keeps the pursuit of simple by flexibility. Lean-Flexible Thinking focuses on simplifying the
inherent process through flexible integration, improvement, optimization, organization design,
product design, service design, etc.
Fourthly, The managers with Lean-Flexible Thinking are not only in pursuit of excellence, but
also respect subordinates. A democratic, harmonious, relaxed, motivated cultural atmosphere is
created. The subordinates being inspired are fully enthusiastic, positive and creative. The staff' s
willing and ability of independent innovation are raised effectively [4]. So that employees
independent innovation ability and efficiency is improved effectively with Lean-Flexible Thinking.

488
Application of Lean-Flexible Thinking in Constructing the Basic Platform of the Enterprises
Independent Innovation
To Create a Lean-Flexible Enterprise Culture
The influence of thinking on culture cannot be ignored. Under the influence of Lean-Flexible
enterprise culture, the two most basic improvement in the enterprises' independent innovation
management will happen. On the one hand, the majority of employees will change from study
passively to learn actively with the concept improved. The employees ' ability of independent
innovation will raise. On the other hand, since Lean is an approach that aims to reduce waste [5],
the waste phenomenon in the whole independent innovation process will be eliminated, and the
problems about insufficient resources in enterprises' independent innovation are to get
improvement. The resources of enterprises' independent innovation have more security.
The process of forming Lean-Flexible enterprise culture should be gradual and orderly [6].Firstly,
The enterprises managers should pay great attention to Lean-Flexible Thinking. Secondly, the
leaders take the lead in training to form Lean-Flexible Thinking. Thirdly, more and more employees
form Lean-Flexible Thinking through training and other ways with the leaders promotion and
encouragement. Fourthly, Lean-Flexible enterprise culture is gradually formed by the common
influence of the employees with Lean-Flexible Thinking.
To Build a Lean and Flexible Technology Innovation Team
Firstly, Lean-Flexible Thinking is a humanized thinking which take the staff as the key of raising
enterprise independent innovation ability. Lean-Flexible Thinking effectively promote the training
and the introduction of high-quality technical personnel. Secondly, Lean-Flexible Thinking which
hates all waste emphasis on streamline of enterprise technology innovation team from the whole to
the details .The waste caused by small jobs and small details, which is often neglected in the past
time, is eliminated. Capable and efficient technology innovation team is formed. Thirdly, the
coordination and efficiency of the organization is not only due to the refining characteristic, but also
due to the flexible characteristic. The enterprise technology innovation team, which is constructed
by using the Lean-Flexible Thinking mode, can not only meet the basic requirements of scientific
nature and systematicness, but also have more obvious elastic and dynamic coordination.
To Improve Enterprises Technology Management Mechanism
Although enterprises can also recognize the importance of establishing and improving the
mechanism of enterprise technology management under the traditional thinking mode, it is difficult
to establish a standard, scientific and systematic technical management mechanism due to the lack
of scientific nature and systematicness. So that some of the technical management documents
conflict with actual situation, policy or other documents.
Lean-Flexible Thinking mode helps to improve the traditional thinking mode. Lean-Flexible
Thinking promote staff to fully consider all aspects of enterprise technology management, including
the lap joint of enterprises technical management documents and the documents of quality
management, cost management, time management, security management and contract management.
The implementation details of technical management is fully considered, including setting up
supporting documents, improving the incentive measures, etc. So that the scientific, normative,
systematic and operable characteristics of enterprises technical management documents are
improved.
To Carry out Dynamic Planning and Control
The traditional thinking mode often leads to the phenomenon of "planning distortion", which has
quite large negative effects on the quality, cost and schedule of enterprises independent innovation.
Transformation of thinking mode is an urgent task for enterprises to improve the effectiveness of
planning and control.
Lean thinking put forward "the last planner system ", that is to change the "push planning
system" to "pull planning system". Under "the last planner system ", the higher plans are pulled by
489
the lower plans which can be more close to the customers demands. The operability of the plan is
improved. These operable plans are being used as the measures of control. And Lean-Flexible
Thinking not only pay attention to Lean methods such as "the last planner system", but also takes
the basic concept of "soft", "dynamic" and "pull" as important thinking internalization. Lean-
Flexible Thinking can be good at dealing with the emergencies with the further improved planning
and control and optimize the quality, cost and efficiency of enterprise independent innovation.

Conclusions
In short, Scientific thinking is the source of inspiration and a strong driving force of the independent
innovation of enterprises. Only by the application of scientific thinking mode, the independent
innovation of the enterprises can succeed. Lean- Flexible Thinking is proposed with many
highlights of thinking. Lean- Flexible Thinking can make the important concept penetrate into all
aspects of the enterprise independent innovation management at all levels. Lean- Flexible Thinking
is not only beneficial to the macro management of the independent innovation, but also beneficial to
the micro management of the independent innovation . The literatures studying on the independent
innovation of enterprises by scientific thinking are absent at present and this paper is a meaningful
supplement.

Acknowledgments
This work was financially supported by the National Social Science Project (12BGL015).

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[6].Xiao Tian-ming. Research on the Interaction of Enterprises Refinement Flexibility Enterprise
Culture and Technological Innovation[J].Science &Technology Progress and Policy, 2012(19):72-
75. (in Chinese)

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

The Design and Realization of Management System for College

Students Innovation and Entrepreneurship Training Projects

Li-hua LI1,*, Su-hua LUO2

1
School of Economics and Management, Tianjin University of Science and Technology,
Tianjin, 300222, China
2
Business School, Guangxi University,
Nanning, 530004, China
*Email: 791879422@qq.com

Keywords: Project Management, Innovation and Entrepreneurship, Management System.

Abstract. Management system for college students innovation and entrepreneurship training
projects proposed in this study aims to deal with the heavy workload of project managerial personnel.
This study adopts B/S structural model to develop the management system for college students
innovation and entrepreneurship training projects, selecting the C computer language as the
developing language, Microsoft Visual Studio 2010 as the developing tool and SQL SERVER 2008
as the database. This system is able to improve project managerial personnels supervision and
management of approved projects, promoting the communication between the project team and the
instructor, and is conducive to train and guide college students to participate in such kind of practice,
thus providing references for colleges and universities in the cultivation of college students practical
abilities.

Introduction
Colleges and universities abroad have paid an increasing attention to the cultivation of college
students practical abilities in independent innovation and entrepreneurship so as to make them keep
up with the demands and development of the era. Many colleges and universities, such as the
University of Miami, Stanford University, Yale University, etc, have encouraged students to try to
participate in innovative projects. Among them, Stanford University even allows students who
engage in entrepreneurship, whether succeeded or not, to come back to school to continue their
studies within two years, which undoubtedly creates a favorable atmosphere for both students and
teachers to perform practical training of innovation and entrepreneurship [1]. Thus, it can be seen that
it is the striving direction for various colleges and universities to emphasize the cultivation of
application-oriented college students practical abilities in innovation and entrepreneurship training
projects and such kind of training is also a good opportunity for college students to improve
themselves.
Domestic management system for science and technology projects started rather late compared
with the foreign one. Currently, the management system for innovation and entrepreneurship projects
used by domestic colleges and universities mainly integrates the implementation process of project
application by the informational means under the background of information era, and provides project
management platform to assist decision-making. The development of management system for college
students innovation and entrepreneurship projects that is in line with college students characteristics
can accurately and timely grasp information about project implementation, effectively reduce the
disadvantages resulted from labor management as well as the inconvenience derived from repeated
data collection, confused management and paper storage of information, and improve the
management efficiency of college students innovation and entrepreneurship projects in colleges and
universities [2-6].

491
 The management system of college students innovation and entrepreneurship training projects
developed and designed in this study intends to intensify project managerial personnels supervision
and management of approved projects, facilitate the communication between the project team and the
instructor, and help colleges and universities to cultivate and guide students in the participation of
social practices. Meanwhile, this study primarily solves the problems of statistics and inquiry of
project information, providing certain screening and evaluation functions for both application and
supervision of projects.

Processing Scheme of the System

The users of the system are mainly students in charge of innovation and entrepreneurship training
projects applied, project instructors, department-level and school-level project management
personnel and super administrators. The operation of the system is required to be as clear and simple
as possible. In addition, the system is in need of facilities conformed to the development conditions
provided by colleges and universities, and the model defined in the system specification should also
be in accordance with the management requirements of college students innovation and
entrepreneurship training projects.
Referring to the system requirements, this study works out the top-layer data flowchart, shown in
Fig.1.
Project
Project
management
D3 application
personnel
form
P1 P2
Project Project Information Weekly record Approval
leaders D5 form of review D7
application comments
management applied projects management
Weekly record
D4 information Instructors
form
P3
Interim report Interim review
D9 Information management
form

P4
Funds withdraw Project conclusion Review Review
D12 application approval D10 D10
comments comments
form management

P5
Project conclusion
D11 Project conclusion approval
application form management

Information form
D12 of conclusion
projects

Figure 1. The systems top-layer data flowchart.

The above figure clearly illustrates the process through which the system deals with various affairs.
Firstly, researchers who apply for projects should fill in necessary project information in the browser.
Then, the project instructor and project managerial personnel should successively review and manage
the project information. After the project is approved, managerial personnel and the instructor should
implement real-time supervision on the project by using this system and then advice and suggestions
can be timely given on the projects schedule and process according to the actual situation. The
project leader should submit the interim and final reports of the project so that the project
management personnel can approve and review online. As the project is concluded, the instructor and
project leader should make comments on the project. These comments will be the basis of assessment
as well as decision of the direction for colleges and universities to cultivate college students practical
abilities. Furthermore, the system also has the function of project achievements presentation.

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Function Classification of the System
The main interface of the system contains hyperlinks for all functional modules which can directly
link to corresponding functional module. The systems overall functional structure is shown in Fig.2.

Figure 2. The systems overall functional structure.

Project Application Information Management Module

This module is designed for import and inquiry of basic information of applied projects and other
basic operations. This module also provides student leaders with freestyle input interface. When
saving the information, student leaders should check the completeness and correctness of data
imported. Only correct data should be saved in the database while prompt information will be given
once incorrect data are imported. Moreover, users can inquire any specified information. However,
information once submitted by the project leader can no longer be modified or deleted. Then, the
instructor should import his/her review comments, followed by the department-level leader and
school-level leaders reviews of project information.
Weekly Records Information Management Module
This module is mainly used for import and inquiry of weekly records basic information of approved
projects and other basic operations. This module also provides student leaders of the project with
freestyle input and inquiry interface. After the instructor and project managerial personnel both
submit their review information, the completeness and correctness of the data imported should be
checked before data are saved. Only correct data should be saved in the database while prompt
information will be given once incorrect data are imported. Moreover, information once submitted,
without special circumstance, can no longer be modified or deleted. Certainly, this module also
allows users to inquire specified information. The instructor can only review and inquire weekly
records of projects instructed by him/her, and put forward suggestions on these projects.

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Interim Review Information Management Module
This module is mainly used for import and inquiry of interim reviews basic information of approved
projects and other basic operations. This module also provides student leaders of the project with
freestyle input and inquiry interface. In this module, the instructor can merely review and inquire
interim review of projects under his/her own guidance and suggestions can be only made on these
projects as well.
Funds Withdraw Management Module
This module is mainly used for approval and inquiry of funds submission information of applied
projects and other basic operations. This module also provides instructors and project managerial
personnel with freestyle inquiry and approval interface.
Project Conclusion Information Management Module
This module is primarily used for import and inquiry of basic information of concluded projects and
other basic operations. This module should provide student leaders of the project with freestyle input
and inquiry interface. After the instructor and project managerial personnel both submit their review
information, the instructor can only review and inquire interim review of projects under his/her own
guidance and his/her suggestions can just be made on these projects as well. In this module, the
instructor and project managerial personnel can make tabulate statistics of reviews of all projects by
exporting basic information of projects into an excel form. Additionally, they can inquire
corresponding application information through the interface. Referring to such information will help
them guide their projects more effectively.
Message Communication Information Management Module
This module is primarily used for import, delivery, reply, inquiry and other operations of basic
information communicated between student leaders and instructors. This module should provide
users with freestyle input and inquiry interface and allow continuous input of data and transfer of
attachment. Besides, when the sender or the recipient delete his/her message information respectively,
the message information management performed by the other side will not get influenced.

Design and Realization of the System

Analysis Phase of the System

At this phase, analyses of management system of college students innovation and entrepreneurship
training projects are conducted, including identifying the systems objectives, determining the
organizational structure, and depicting the organizational chart. Whats more, the application,
approval, conclusion and other business processes of college students innovation and
entrepreneurship training projects are also analyzed and the business process chart is afterwards
drawn. Subsequently, jobs such as analyzing the data, drawing the data flowchart and ER diagram,
compiling the data dictionary, making functional/data analysis and classifying sub-systems are done.
In short, requirements specification and data specification should be finished during this phase.
Design Phase of the System
This phase mainly focuses on the design of college students innovation and entrepreneurship training
projects. The design of the system includes general design and detailed design. General design mainly
covers concrete realization schemes of the system, function decomposition of information system,
etc; while detailed design mainly targets at input/output design, interface design, process design of
each module divided by the system, including drawing data processing flowchart, input/output
interface diagrams, etc. At this phase, general design specification, database design specification and
detailed design specification of the system should be completed [7-9].

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Realization Phase of the System
This phase centers on the realization of college students innovation and entrepreneurship training
projects. According to the requirements of design specification of the system, C# is set as the
developing language and Microsoft Visual Studio 2010 is set as the developing tool. Then, the
software codes of information system are realized in combination with the database of SQL SERVER
2008, and the debugging of presentation layer is performed. At this phase, submission of the program
list, programming specification and instructions of the system is required [7-9]. Eventually, the
system with complete functions can be issued after the testing phase of the system.

Conclusions
Through feasibility analysis of technical, economic, social, legal, operational and other aspects, the
development of the system is completely feasible. The system, combining Microsoft.NET platforms
ASP.Net technology and SQL technology, achieves the back-end processing and front-end design.
The application of B/S model in the development of the system is conducive to the convenience of the
systems upgrade and makes the system possess strong portability and good safety performance at the
same time.

References
[1] Hua-jun Xiong, Ceng Yue, Stanford University: developing entrepreneurship education into
every corner (In Chinese), China Science Daily, other information is missing (2012).
[2] Li-hui Cao, An innovative study of professional science and technology archives management
model in colleges and universities (In Chinese), Inside and Outside Lantai. 5 (2013) 39.
[3] Yong-sheng Zhao, Design and implementation of science and technology management
information system in colleges and universities (In Chinese), Science & Technology Information. 13
(2011) 65, 83.
[4] Hua Tan, Existing problems of science and technology archives management in colleges and
universities and its measures (In Chinese), HUT Journal (Social Science Edition). 3 (2010) 141-142.
[5] Hang Xiao, Xiu-bing Zhang, Development and realization of science and technology
management information system in colleges and universities (In Chinese), Journal of Huaqiao
University (Natural Science Edition). 4 (2007) 372-375.
[6] Fan Ye, Yun-zhi Gong, Design and realization of science and technology management
information system in colleges and universities (In Chinese), Information & Communications. 5
(2006) 38-41.
[7] Da-wei Fang, Shuang Lv and Yun-feng Liu, ASP.NET Programming Bible, China Renmin
University Press, Beijing, 2011.
[8] D. Cristian, W. Karli, ASP.NET Electronic Commerce Development Practice, Posts & Telecom
Press, Beijing, 2010.
[9] W. C. Chung, H. Lau, Development of architecture for a hybrid manufacturing information
system, Engineering with Computers. 16 (2000) 1-9.

495
2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Research on the Innovation Evaluation Indexes for

Innovation-Oriented City
Hai-jun WANG1,*, Si-yi GONG2
1School of Management, Shenyang University of Technology
2Shenyang, Shenliao West Road, Liaoning Province, 110870, China
*Email: wanghj77@163.com

Keywords: Innovation evaluation indexes, Innovation capability, Indicator system.

Abstract. The design of innovation evaluation indexes will facilitate the evaluation of innovation
capability level of city. This article firstly constructs a theoretical model for innovation evaluation
indexes, and analyzes a three-dimensional model for constructing the innovation evaluation
indexes. Secondly, this article analyzes the characteristics of the typical innovation evaluation
indexes such as European innovative scoreboard and Silicon Valley index contrastively. On that
basis, this article takes Shenyang, a China national innovation-oriented city, as an example,
designing an innovation evaluation index system and a calculation method for the construction of
the national innovation-oriented city. The evaluation index system can provide theoretical basis for
creating innovation conditions, activating innovation vitality, promoting innovation performance
and optimizing innovation environment for the national innovation-oriented city construction.

Background
In 1911, a book Theory of Economic Development published by Schumpeter, J.A. in 1912 firstly
presented the concept of innovation (Dalton, 2001). Since this century, the study results regarding
innovation theory and demonstration have been emerging, and study on innovation evaluation
indexes has also been increasing. At present, the innovation system can be divided into three
catergories, namely national innovation system, regional & urban innovation system and enterprise
innovation system (Zhou, 2012).
A general survey of the progress of innovation study at home and abroad indicates that most
studies on innovation focus on the national level, and a relatively complete theoretical system has
been formed (Ding, 2008). However, study on the regional innovation evaluation is relatively
lagging, and a complete theoretical system has not been formed yet, and particularly, there isnt a
systematic evaluation indicator system and evaluating methods for the city-level innovation system.
For that reason, this article proceeds with the urban innovation theory on the basis of the existing
study (Zhao, 2008), constructing an innovation capability index system that matches urban industry
structure characteristics. This article selects the representative national innovation-oriented city of
northeast China as an example, so as to provide a support for the objective evaluation of the
innovation performance of the national innovation-oriented city.

Theoretical Basis
Innovation Index Theory
A study of scholar Freeman (2002) indicates that innovation in economics means the first
commercial conversion of technologies in the forms of new products, new techniques, new systems
or new equipment, etc. Later, Nulsen and Rosenberger extend the meaning of innovation, thinking
that both generation, diffusion, utilization and commercialized application of technology fall into
the innovation concept (Young, 2003). Hence, innovation includes a series of processes, such as the

496
generation, application and diffusion of technologies (Michael, 200). According to the meaning of
innovation, innovation has to experience the following three processes in order to drive the
development of economic society (Yu, 2011): I. The premise and foundation of innovative
activities, namely innovation resources (including human, financial and material resources) are put
into the innovative activities; II. The starting point of innovative activities, namely research and
development activities are carried out; and III. The application of research and development results
and the diffused implantation of research and development results into economic and social
development, which are the core link of innovative activities. For the innovation-oriented cities, the
innovation system for the innovation-oriented cities is a regional innovation system, including all
innovation subjects such as enterprises, research institutes, institution of higher learning and
governmental agencies and maintains and promotes the innovation environment constructed by
innovation for innovation-oriented cities, including policy environment, macroeconomic
environment, sociocultural environment, market environment, etc.
According to the analysis above, we have constructed the theoretical model with the innovation
evaluation indexes, as shown in Fig 1. The theoretical model combines the innovation process
model and the regional innovation system and discloses a simple process of driving economic and
social development in the innovative form, and thereby providing a theoretical support for
analyzing the innovation evaluation indexes.

Figure 1. Theoretical model for innovation indicators.

Basic Elements of Innovation Evaluation Indexes

Based on Fig 1, we can analyze the three basic elements of the innovation evaluation indexes,
namely innovation system, innovation input and innovation performance (Radosevic, 2002). The
innovation system is the premise of the construction of innovation-oriented cities and also the
foundation of innovation activities, mainly including innovation subjects (enterprises, institutions of
higher learning, research institutes and intermediaries) and innovation environment (policy
environment, macroeconomic environment, sociocultural environment and market environment).
Innovation input is the safeguard of the construction of innovation-oriented cities and also the
starting point of the innovation activities, mainly including innovation expenditures (research input
and educational input) and innovative talents (existing talents and potential talents). Innovation
performance is a target which the construction of innovation-oriented cities pursues, and is the
embodiment of the effect of innovation activities. It mainly includes innovation achievements
(technical development and technical transformation) and innovation benefits (economic benefit
and social benefits), which are shown in Fig 2.

Figure 2. Three-dimensional model of the constitution of the innovation evaluation indexes.

497
Comparative Analysis of the Existing Innovation Evaluation Index Systems
At present, many international institutions and organizations have constructed the innovation
evaluation indexes from different aspects into the indicator systems with different features. Due to
differences between the evaluation subject and the evaluation objective and divergence in the
understanding of the innovation evaluation indexes, there is a larger difference in the viewing angle
and expression approach of the construction of the innovation evaluation indexes. Comparison and
analysis (Tab 1) in this article are carried out from the aspects of evaluation objects, evaluation
purposes, index constitution, index weighting, index characteristics, etc.
Table 1. Contrastive analysis of the existing representative innovation evaluation indexes.
Evaluation Evaluation Index
Category Name Index characteristics
organization purpose constitution
Three levels 1. Typical input-output
Publicly
(3 for first framework;
European published,
European level, 7 for 2. Stress on enterprise indexes;
innovation comparison
Union second level 3. Mostly adopt indicators, such
scoreboard among
and 30 for as ratio and proportion;
countries
third level) 4. Revise annually
1. Science and technology and
science and Economic Publicly
Two levels (6 industry are associated, and
technology cooperation published,
for first level emerging technologies and
and and comparison
and 76 for industry are focused;
industry development among
Published by second level) 2. Relative indexes remain
scoreboard organization countries
international dominant
official 1. Emphasize technical creation
organizations Publicly and application rather than effort
United Two levels (4
Technical published, and input of state in scientific and
Nations for first level,
achievemen comparison technological development;
Development 8 for second
t index among 2. Relative indexes remain
Porgramme level)
countries dominant;
3. Evaluation among countries
Publicly
Two levels (4
Knowledge published, 1. Include institutional indexes;
for first level,
economic World Bank comparison 2. Relative indexes remain
12 for second
index among dominant
level)
countries
Publicly Two levels (5 1. Human capital and knowledge
Knowledge Robert
published, for first level, capital are used as core elements;
competitive Huggins
comparison 19 for second 2. Relative indexes remain
-ness index Association
among cities level) dominant
1. Comprehensive evaluation of
scientific and technological
Three levels
Publicly innovation and economic and
Published by Silicon (5 for first
Silicon published, social development;
non- Valley level, 15 for
Valley annual 2. Stress on risk investments and
governmental network second level
index comparison of employment;
organizations or company and 66 for
Silicon Valley 3. Combine absolute indexes and
individuals third level)
relative indexes
4. Revise annually
Academic 1. Judge by the theory of
National Two levels (4
research for competitive advantage; 2. Stress
innovation Porter and for first level,
comparison on the effect of cluster network; 3.
capability Stern 10 for second
among Combine absolute indexes and
index level)
countries relative indexes

498
Design of Urban Innovation Evaluation Indexes
Determination of Innovation Indexes
According to the research on current literature, existing studies on the innovation evaluation for the
innovation-oriented cities are generally short of overall analysis. The indexes are of great difference
in different designs. The studies mainly proceed from the components of several
innovation-oriented cities, such as cultural innovation, technical innovation and scientific and
technological innovation, and seldom involve political innovation, institutional innovation,
functional innovation, etc. Secondly, at present, the existing research is mostly concentrated upon
the evaluation indicator system of citys technological innovation capability, but not analyzes from
the substitutive characteristics of the innovation-oriented cities. Technological innovation capability
is the main side of the construction of the innovation-oriented cities but not all, it can only reflect
the essential characteristic of the innovation-oriented cities from one important side but does not
have the universality of the characteristics of the innovation-oriented cities.
On the basis of profoundly analyzing Shenyangs planning and demands on the construction of
national innovation-oriented city, this article fully draws lessons from and absorbs the achievements
regarding research on innovation evaluation indexes at home and abroad to determine the
aggregative indicator system for Shenyangs innovation evaluation indexes, which is constituted by
29 indexes in three levels. The indicator system is shown in Tab 2.
Table 2. Indicator system of Shenyang urban innovation evaluation indexes.
Second-level
First-level indicator Third-level indicator
indicator
The quantity of high-tech enterprises
The quantity of research and development institutions
Innovation subject The quantity of engineering technology research centers
The quantity of the technical centers of overseas-funded
Innovation system enterprises
Number of incubators
Innovation Incubator area
environment The quantity of accelerators
Accelerator area
Proportion of R&D expenditures to GDP
Innovation Proportion of financial science and technology inputs to
expenditure financial expenditures
Expenditures for technical development of enterprises
Innovation inputs
Quantity of professional and technical personnel owned by ten
thousand people
Innovative talents
Quantity of persons acquiring direct-level and more than
direct-level scientific and technical rewards
The quantity of high-tech products
Innovation The quantity of 100,000-person authorized patents
achievements The quantity of authorized invention patents
Innovation Turnover of technical market
performance Proportion of the output value of high-tech industry to the total
output value of industry
Innovation benefits
Proportion of the added value of high-tech industry to GDP
The output value of high-tech enterprises

Assessment Method for Innovation Evaluation Indexes

Index Weighting Method. A linear weight allocation model is selected according to the weight
allocation method employed in the comprehensive evaluation method, which is shown in the
formula (3.1).

499
 i
wi = 1 (3.1)
n +

Where, wi is index weight, i is the sorting sequence order of indexes, n is the number of indexes,
is an adjustment parameter, which is used as a fine adjustment coefficient distributed by weight.
According to the important degree among indexes, the appropriate is valued, 0<<, the smaller
is valued, the larger the balance distributed by weight is acquired, and on the contrary, it is the
opposite.
Data Standardization Processing Method. The standardized processing of data mainly includes
data iso-tendency and nondimensionalization. As each index contained in the indicator system tends
to have different metering units, namely different evaluation indexes have different dimensions and
dimension units. In order to eliminate the effect on dimensions and dimension units, indexes
expressed in different units shall also be converted, namely nondimensionalized while constructing
the comprehensive index to solve the synthesis problem among different metering unit indexes. For
example, the standardized processing can be carried out by using the formula (3.2).

X ijk
Yijk = 100 (3.2)
X 0ijk

Where, Yijk is the standardized value of three-level indicator; Xoijk is the indicator data of base year;
and Xijk is the indicator data of to-be-evaluated year
Calculation of Innovation Evaluation Indexes
Step1: Calculation of second-level indicator. Second-level indicator Yij is formed by weighting
and synthesizing the standardized value of the third-level indicator, namely

nk
Yij = wijk Yijk (3.3)
k =1

Where, wijk is the corresponding weight of the third-level indicator.

Step2: Calculation of first-level indicator. First-level indicator Y i is formed by weighting and
synthesizing the second-level indicator, namely

nj

Yi = wij Yij (3.4)

k =1

Where, wij is the corresponding weight of the second-level indicator.

Step3: Calculation of overall innovation evaluation index. The innovation evaluation index is
formed by weighting and synthesizing the first-level index, namely

ni
Y = wiYi (3.5)
k =1

Where, wj is the corresponding weight of the first-level index.

Conclusion
During the construction of innovation-oriented cities, the correct evaluation on self-innovation
capability must be given. Since NDRC agreed that 16 cities, such as Shenyang, developed the pilot

500
project of innovation-oriented cities, Shenyang City constantly explored in the progress of
constructing the national innovation-oriented cities, and clearly put forward that innovation driving
is used as the power of city growing. Therefore, the research and formulation of the reasonable
comprehensive evaluation method and the improvement of implementation thereof have the
important application value.
This article firstly analyzes the intension of innovation theory, analyzing the three-dimensional
theoretical model formed by the innovation evaluation indexes of the innovation-oriented cities and
the principle for selecting indexes; and secondly, this article analyzes the characteristics of the
typical innovation evaluation indexes such as European innovative scoreboard and Silicon Valley
index contrastively. As the industrial structure and the economic development mode of each city
have many differences, this article takes Shenyang, a China national innovation-oriented city, as an
example, studying and constructing an innovation evaluation index system and a calculation method
thereof. The research theory of this article can provide a support for the measurement of Shenyang
or other relevant national innovation-oriented cities and the evaluation of local innovation capability
level, facilitating continuously monitoring the innovation condition of cities for a long time and also
guiding the development of innovation work of cities.

Acknowledgement
This paper is funded by Shenyang City Soft Science Project of China (F15-198-5-14), and the
authors herewith show appreciation for its support.

References
[1] Dalton R. Peer under pressure [J]. Nature, 2001(413): 102-104.
[2] Zhou Q, Liu Z G, Zhu H Y, et al. Research on the Evolution of Innovation System Theory and
Theoretical System [J]. Science of Science and Management of S. & T., 2012(02): 50-55.
[3] Zhao Y Y, Zhen F, Wu Yi L. Dynamic Trend and Determinate Factors of Innovative Ability in
Chinas Provinces, Autonomous Region [J]. Economic Theory and Business Management, 2008(4):
49-60.
[4] Furman J L, Porter M E, Stern S. The determinants of national innovative capacity [J]. Research
Policy, 2002(31):899-933.
[5] Young S N. Peer review of manuscripts: Theory and practices [J]. Journal of Psychiatry &
Neuroscience, 2003(28): 327-330.
[6] Porter M E, Stern S. The new challenge to Americas prosperity; findings from the innovation
index [D]. Harvard; Harvard Business School. 1999.
[7] Yu X Y, Xie FJ. Innovation Mechanism of Urban Innovation System Based on the Input of
Resource Elements[J].2011(02):161-167.
[8] Radosevic S. Regional Innovation Systems in Central and Eastern Europe: Determinants,
Organizers and Alignments[J]. The Journal of Technology Transfer. 2002 (01):87-96.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

South Africa as the Case Study on the Relationship between

Entrepreneurship and Economic Development
Yue GUO1,a, WANANGWA Nganjo2,b
1
PostDoctoral in Nan Jing University Business School, Nanjing, P.R. China, 210093
Professor of Economics & Management School in Ningbo University of Technology,
Ningbo, P.R. China, 315211
2
Student of Economics & Management School in Ningbo University of Technology,
Ningbo, P.R. China, 315211
Email: aguoyue@nbut.edu.cn, bwanangwa@live.com

Keywords: Entrepreneurship, Economic development level, Social attitudes, Individual attitudes,

Entrepreneurial activity.

Abstract. This essay explains how entrepreneurship and economic development relate with each other.
It uses a qualitative case study, exploring data to explain the relationship between the two phenomena.
In the findings, the relationship between entrepreneurship and economic development is two-way and it
shows that the two phenomena are interdependent. Entrepreneurial activity affect socioeconomic
development through its outcomes, which depend on the type of activity, sector and the phase of the
organization cycle. Entrepreneurial activity are influenced by national framework conditions and
entrepreneurial framework conditions, both directly and indirectly (through individual attitudes and
social attitudes). The two conditions are in turn dependent on the level of economic development.

Introduction
It should be an obvious fact that entrepreneurship impacts economic developmentor at least
economic growth, if such is not an overstatement. In a decade when the world if faced with finance,
environment change and food crises, it has been argued that the solution to these crises will require
entrepreneurship. However, what is overlooked is the fact that the relationship between
entrepreneurship and economic development is two-way and that the level of economic development
impacts the level of entrepreneurial activities.
South Africa is an efficient-driven economy and one whose growth has been, together with Brazil,
Russia, India and China (members of the BRICS), credited to entrepreneurship. As an emerging
economy, it has had a need to sustain its economic growth through sustainable access to resources,
knowledge, markets, and low-carbon industrialization. As Naud observes, this puts a premium on
entrepreneurship [1]. Having innovation as its key defining element, entrepreneurship allows
efficiency by increasing output from a given amount of resources or inputs. At the same time
innovation involves discovering new markets and environment safe means of production. As a result,
entrepreneurship should have a substantial impact on economic growth and development.
On the other hand, one should expect a high level of entrepreneurial activity in South Africa - which
is not the case, however. This points us to the fact that the level of a countrys economic development
affects the level of entrepreneurial activity and the type of entrepreneurship to be expected in that
country. According to the GEM Sub-Saharan African Regional Report, only 7.0% of the adult
population in South Africa were engaged in entrepreneurship, while only 2.0 already owned an
established business [2]. Compared to the countries in its region, South Africas entrepreneurial activity
scores were unexpectedly low (as table 1 as below).

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 Table 1. Activity levels and entrepreneurial motivations in 10 sub-Saharan countries.
Early stage Established Discontinuation Necessity-driven Opportunity-driven
Economy
entrepreneurship ownership rate of businesses (% of TEA) (% of TEA)
Angola 32% 9% 26% 24% 38%
Botswana 28% 6% 16% 33% 48%
Ethiopia 15% 10% 3% 20% 69%
Ghana 37% 38% 16% 28% 51%
Malawi 36% 11% 29% 42% 43%
Namibia 18% 3% 12% 37% 37%
Nigeria 35% 16% 8% 35% 53%
South Africa 7% 2% 5% 32% 40%
Uganda 36% 31% 26% 46% 42%
Zambia 41% 4% 20% 32% 46%
Sources: African Entrepreneurship Sub-Saharan Africa Regional Report 2012 (adapted)
Whats even stranger is the fact that the percentage numbers of early stage and necessity-driven
entrepreneurship having been reported as 7% and 32%, respectively. Given the rate of unemployment
and underemployment, which was at 40% in 2014 and was estimated to reach up to an excessive 60%
in future [2], opportunity-drive it is logical to presume that the rates of both early stage
entrepreneurship and opportunity-driven entrepreneurship would be high with the large number of the
unemployed and underemployed resorting to businesses. However, this is not the case. The
International Labor Organization data showed unemployment rate to be at 25.3%, as shown in table2
below.
Table 2. Unemployment rate in sub-Saharan Africa, 2014.
Country Total unemployment rate
Angola 8.4
Botswana 18.4
Ghana 4.5
Malawi 7.6
Namibia 17.7
Nigeria 7.5
South Africa 25,3
Uganda 3.9
Zambia 13.3
Average SSA 7.6
Source: The International Labor Organization [3]
This essay, therefore, attempts to address the following problems:
How does entrepreneurship affect economic development and vice versa?
Given its level of development, why is South Africas entrepreneurial level that low?
However, before moving on to the next section of the essay, there is a need to clarify what is it meant
in this essay by entrepreneurship and economic development level. There are different definitions of
the terms entrepreneurship (largely depending on the field of study). For instance, Shane and
Venkataraman [4] define entrepreneurship as the discovery and exploitation of opportunities. Another
definition of entrepreneurship is any attempt at a new business or new venture creation, such as self-
employment, or new business organization or the expansion of an existing business, by an individual,
or an established business [5]. It is the latter definition that this essay adopts.
Economic development level as defined by Porter [6] categorizes economies as: factor-driven,
efficiency driven and innovation driven. The distinction between the three implies different levels of
entrepreneurial activities. Factor driven economies are characterized by movement from subsistence
agriculture to extraction of natural resources, creating regional scale-intensive agglomerations in the

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process. Such countries have basic requirements. Efficiency-driven countries have increased
industrialization and economies of scale. Large firms dominate these economies but there is room for
SMEs (small and medium enterprises). Their key development focus is efficiency enhancers. Lastly,
innovation-driven economies are typically characterized by research and development, knowledge
intensity and expanding service sector. They have great potential for innovative entrepreneurial
activity. South African, as stated earlier, is an efficiency-driven economy.

Literature Review
According to Porters [6] definition, economic development is classified in three levels: factor driven,
efficiency driven and innovation driven economies. A countrys level of economic development affects
the level of entrepreneurship. At the same time, the level of entrepreneurship effects the economic
development of a country. As assumed by GEM, economic growth is the result of personal
capabilities of individuals wherever there are located (regardless of size of business or if they are self-
employed) to identify and seize opportunities [7]. This is occurs in a social cultural and political
environment. Thus, the relationship between entrepreneurship and economic development is
interdependency.
According to GEMs conceptual framework [7], the interdependency between the two phenomenon
works this way: within the social, cultural and political context, national framework and entrepreneurial
framework conditions (both characterized by basic requirements, efficiency requirements and
innovation and business sophistication) influence and are influenced by social values towards
entrepreneurship and individual attributes (i.e. demographic, motivation, psychology). Social values
towards entrepreneurship and individual attributes in turn influence and are influenced by
entrepreneurial activity. Entrepreneurial activity are distinguished by the phase of organization cycle
i.e. new, established, discontinuation), the type of activity and sector. This in turn affects the
entrepreneurial output (new jobs, new value-added) which influence socio-economic development.
National framework and entrepreneurial framework conditions also directly affect and are affected
by both entrepreneurial activity and entrepreneurial output. The way national framework and
entrepreneurial framework conditions of a country affect or are affected depends by the other
phenomenon is a matter of whether that country is a factor, efficiency or innovation-driven economy.
In 2014, GEM reported that the biggest factors that allowed entrepreneurship in South Africa are good
infrastructure and banking systems while inadequately educated workforce, inefficient government
bureaucracy, high level of crime and onerous law were its constraints. On the other hand there were
only a few government initiatives to improve entrepreneurship. These factors affected individual
attitudes. For instance, 35% of adults in South Africa saw good opportunities to start a business; 25.4%
of these would be prevented from doing so by fear of failure [2].
Entrepreneurship is positively correlated with economic growth, but the relationship differs between
phases of economic development [8,9,10]. As a developing economy grows it enters an industrialized
phase and transitions from a factor-driven to an efficiency-driven economy. At this level, there is a
qualitative change in the drivers of economic growth (from basic to efficiency factors). With further
economic growth the economy transitions into an innovative-driven one, with new driving factors i.e.
at the level growth is driven by technology advance and accumulation of knowledge as a result of R&D
efforts of firms [11].

Methodology
The essay employs qualitative case study to how entrepreneurship relate to economic development
within the social, cultural and political context. It also aims to explain why South Africa has low level
of entrepreneurial activity when its economic phase implies/predicts otherwise. The chosen

504
methodology is due to the fact that the essay deals with how and why questions. The essay explores
research findings from a survey made by the Global Entrepreneurship Monitor(callGEM as blow)
[12], limiting its focus on the data on adult entrepreneurs (18 - 64).

Analysis
From 2001 to 2014 the averages for individual attitudes were as shown in Table3 below. Individual
attitudes include perceived opportunities, perceived capabilities and fear of failure (psychological
factors). In 2014, South Africas scores were 37.0%, 37.7% and 25.5% for the three factors. The scores
for perceived opportunities and capabilities were both half the average of the sub-Saharan region.
Table 3. Perceptions of good opportunities in the adult population of South Africa 2001-2014.
Potential Entrepreneurs 2001 2005 2009 2013 2014 Ave SSA**
Perceived good opportunities 19.7* 27.3 35.4 37.8 37.0 73.3
Perceived capabilities 30.4 35.2 35.5 42.7 37.7 77.4
Fear of failure 26 25.5 29.5 27.2 25.5 23.9
(*read as 19.7% of the adult in 2001 perceived there were good opportunities to start business; **SSA = sub-Saharan Africa;
Source: The GEM South Africa 2014)
The other factors measured were social attitudes (refer social values towards entrepreneurship).
Social attitudes measure entrepreneurial intentions, the extent to which society values entrepreneurship
as a good career, whether entrepreneurs have high social status and the extent to which media attention
to entrepreneurship contributes to the development of a positive entrepreneurial culture. In 2014, the
scores for these factors were: 11.8%, 69.6%, 72.9% and 72.6% among South African adults.(As Table4)
Table 4. Entrepreneurial attitudes and intentions in South Africa, 2003-2014.
Ave
2003 2004 2005 2006 2008 2009 2010 2011 2012 2013 2014
SSA
Entrepreneurial 12.2
15.6 10.7 9.3 16.9 13.3 19.6 17.6 14.0 15.4 11.8 58.0
intentions *
Good career choice 48.0 59.3 55.2 60.9 64.6 63.7 77.5 72.7 74.1 74.0 69.6 71.5
High status to
successful 48.0 59.1 56.0 59.3 62.2 64.0 77.6 72.1 74.0 74.7 72.9 77.6
entrepreneurs
Media attention for
47.5 59.3 54.4 56.8 69.2 63.9 78.6 73.5 72.9 78.4 72.6 72.9
entrepreneurship
(*read as 12.2 of South African adults in 2003 who have entrepreneurial intentions; Source: The GEM South Africa 2014)
South Africas rates for entrepreneurial activity in amongst adults, 2014, were 4% (nascent), 3%
(new business), 7% (early stage), 2% (established business) and 5% (discontinuation). Entrepreneurial
activity is defined according to phases of life cycle of entrepreneurial ventures. It also includes sector
activity. It measures total early stage entrepreneurial activity and social entrepreneurial activity for
which South African adults scores were 32% and 40%, respectively. These rates (percentages) are
shown in tables5 and 6 below.
Table 5. Prevalence rates (%) of entrepreneurial activity amongst the adult population in South Africa, 20012014.
2001 2005 2009 2013 2014 Ave SSA**
Nascent entrepreneurship 5.3* 3.6 3.6 6.6 3.9 14.1
New business ownership rate 1.4 1.7 2.5 4.1 3.2 13.0
TEA 6.5 5.2 5.9 10.6 7.0 26.0
Established business ownership rate - 1.3 1.4 2.9 2.7 13.2
Discontinuance of business - 2.9 3.5 3.9 3.9 14.0
Source: The GEM South Africa 2014

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 Table 6. Opportunity and necessity-driven TEA rates amongst the adult population of South Africa, 2001-2014.
2001 2005 2009 2013 2014 Ave SSA**
Necessity-driven (% of TEA) 18.5 39.5 36.0 30.3 28.2 33.7
Opportunity-driven (% of TEA) 62.7 57.0 60.7 68.6 71.3 64.0
Ratio of Necessity vs. opportunity 0.3 0.7 0.6 0.4 0.4 0.5
Source: The GEM South Africa 2014

Findings and Interpretation

The data above shows that only 37.7 believed they were capable of doing business, and 37.0 % of
adults in South Africa see good opportunity to start business. These two rates were half the average of
the sub-Saharan region, which were 73.3% and 74% for perceived good opportunities and capabilities,
respectively. 25.5% of these would be prevented from doing so by far of failure. Thus, out of 37.0%
potential entrepreneurs, other factors held constant, only 11.5% would actually ventures in business.
The rate of fear of failure was more than the average of sub-Saharan region.
In terms of social attitudes towards entrepreneurship in 2014, the data indicate that 74% of adult
population believe that entrepreneurship is a good career choice, while 74% believe that entrepreneurs
hold a high status in society and media attention to the entrepreneurship contributes to the development
of a positive entrepreneurial culture to the extent that it scored 73%. These rates had dropped compared
to previous years but they remained similar to the average of sub-Saharan region. Entrepreneurial
intentions indicators were very low, howeverabout five times lower than the average of sub-Saharan
region.
Prevalence rates of entrepreneurial activity amongst the adult population in South Africa were also a
number of times low. The score for adults had taken steps to start a business but who hadn't paid
salaries or wages for more than three months (nascent entrepreneurs) was 3.9%. Those who owned new
enterprises (business that hadn't been operation for more than 42 months) were 3.2%. Mature business
owners (that is, businesses that had been operational for more than 42 months) were 2.7%. Early stage
entrepreneurial activity represented 7% while discontinuation represents 3.9% - this is a percentage of
those who for some reason exited from running a business in the past year.
Necessity and opportunity-driven rates were 28.2% and 71.3%, respectively, with a necessity vs.
opportunity ratio of 0.4.

Conclusion
Taking in mind the fact that unemployment and underemployment rate was in 2014 for South Africa,
perceived opportunities and capabilities rates were very loweven for an for an efficiency-driven
economy that it is. Normally, the two rates are expected to be low as an economy is at that level, but
given the 40% for unemployment and underemployment, there should be an increased rate of perceived
opportunities and capabilities.
On the other hand, entrepreneurial attitudes should also increase, particularly in terms of
entrepreneurial intention, which was reportedly at 11.3%. The mentioned social attitudes and individual
attitudes should in turn increase entrepreneurial activityespecially nascent, new business, established
business and necessity-driven rates. These were reported to be in 2014 at 3.9%, 3.2%, 2.7% and 28.2%,
respectively.
The low level of entrepreneurship can be attributed to fear of failure, which results in low rates of
entrepreneurial intention, perceived ability, entrepreneurial activity, etc. On the other hand, political
and social framework conditions in South Africa are unfavorable to entrepreneurship. As stated earlier
in the essay, high levels of crime presents and onerous law present challenges for potential
entrepreneurs. On the other hand, there are very few government initiatives that contributes towards

506
improving entrepreneurship. The most successful initiatives are supported by private companies. That's
why entrepreneurship level in South Africa is low.
From the above explanation, it should be clear that national and entrepreneurial framework
conditions such as government initiatives, education and crime affect social and individual attitudes.
The latter also affects the former of course. Individual and social attitudes in turn affect and are affect
by entrepreneurial activity. Entrepreneurial activity affect the output i.e. job creation and added value.
Thus the output depends on the type of entrepreneurial activity (whether the activity is high growth,
innovative or not). Finally, output affects outcome (socioeconomic development).
National framework and entrepreneurship framework conditions (within a social, cultural political
context) are affected by economic development levels. At the same time, there are direct links between
national framework and entrepreneurship framework conditions, and entrepreneurial activity and
outcomes. The conditions effects entrepreneurial activity and outcomes, while on the other hand,
entrepreneurial activity also directly affect the conditions. This shows a reverse direction of cause and
effect, indicating how entrepreneurship affects economic development and vice versa.

Acknowledgement
This research was financially supported by the Zhejiang Province Postdoctoral Project Foundation (No.
BSH1502022).

Reference
[1] Naud, W., (2011). Entrepreneurship and Economic Growth. Retrieved from
http://unu.edu/publications/articles/are-entrepreneurial-societies-also-happier.html
[2] Herrington, M., Henley D., (2012). Global Entrepreneurship Monitor 2012
Sub-Saharan Africa Regional Report. Retrieved from gemconsortium.org/docs/download/
[3] International Labor Organization, http://www.ilo.org/global/research/global-reports/global-
employment-trends/2014.
[4] Shane, S., Venkataraman S., (200) the Promise of Entrepreneurship as a Field of Research.
Retrieved from http://www.jstor.org/stable/259271
[5] Reynolds, P.D., Hay, M. and Camp, S. M. (1999). Global Entrepreneurship Monitor 1999
Executive Report. Retrieved from gemconsortium.org/docs/download/
[6] Porter, M.E., Schwab, K., Sachs, J. D., (2002). Global Competitiveness Report. Retrieved from
www.nectec.or.th/pld/indicators/doocuments/WEF-Global-competitiveness-report
[7] Herrington, M., Kew J., Kew P. (2014). Entrepreneurship Monitor 2014
South Africa Report. Retrieved from gemconsortium.org/docs/download/
[8] Acs, Z.J., and Amoros, J.E., (2008). Entrepreneurship and Competitiveness Dynamics in Latin
America
[9] Stel, A., Carree, M., Thurik, R., (2005). Discussion Papers on Entrepreneurship Growth and
Public Policy.
[10] Wennekers, S., Stel, A., Carree, M., Thurik, R., (2010). The Relation between Entrepreneurship
and Economic Development. Retrieved from ondernemerschap.panteia.nl/pdf-ez.h200824.pdf

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[11] Peretto, P.F (1999). Industrial development, technological change, and a long-run growth.
Journal of Development Economics 59: 389-417. Retrieved from public.econ.duke.edu/peretto/
JDE1999.pdf
[12] Singer, S., Amoros, J.E., & Moska, D. (2015). Global Entrepreneurship Monitor 2014 Global
Report. Retrieved from gemconsortium.org/docs/download/3616

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 2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Study of Factors of Low-carbon Operation (LCO) of Manufacturing

Enterprises and Their Implementation Paths

Dan-dan WANG
International Business School Tianjin University of Finance &Economics, Tianjin, China, 300222

Keywords: Manufacturing enterprises, Low-carbon operation (LCO), Green transformation,

Low-carbon industries, Low-carbon economy, Green-washing.

Abstract. Low-carbon psychological consciousness, enterprises image expectation, cost and

performance forecast, the context combining institution and technology and public guidance are five
factors that have enormous influence on LCO pattern of enterprises. Among these factors, the first
one belongs to the category of consciousness, the second and the third ones fall into the category of
action while the last two deal with the environment. According to the correlations among
awareness-circumstance action, an integration model is set up and the mechanism between each
factor to the low-carbon operation model is explored. The research also provides targeted policy
thinking and implementation path for the enterprise low-carbon operation.

Introduction
LCO of manufacturing enterprises refers to the process that under specific economic and social
background, when main objectives are achieved, the organization continuously decreases the
emission of greenhouse gases and realizes low energy consumption, low emission and high benefits,
including economic and social ones, through reasonable portfolio strategies [1].From connotative
aspect, this conception entails both direct actions (e.g. cut in energy consumption and carbon
emission during production) [2] and indirect ones (e.g. recycling waste). In terms of its scope, such
operation pattern indicates that in order to fulfill social responsibilities, enterprises form good
relationships with government, other enterprises and consumers by environmental managerial
policies and dialogues on environmental protection [3, 4]. In fact, lacking standards in
decarbonization, more and more green-washing cases are threatening LCO of manufacturing
enterprises.

Literature Review
There are two key issues in LCO of manufacturing enterprises: first, what are the influence factors;
second, how to realize it.
As for the first issue, suggestions from experts are as follows. Klassen and his partners found that
low carbon technologies, including technologies of environmental protection (e.g. decarbonization
of products and production) and pollution control technologies (e.g. terminal treatment technology),
significantly affect both manufacturing and environmental performance of an enterprise [5] .
Kitazawa and his teammates pointed out that positive launch of ISO 14001 environmental
management system is beneficial to environmental management [6, 7]. Markard and his colleague
believed that to mitigate climate change, sociotechnical system needed a transformation, which
requires innovation of low-carbon technologies. Batisti and his partner noted that compulsory
institutions forced by authorities are forceful engines to facilitate enterprises to take to low-carbon
production actions [8]. Frantzeskaki and his teammates further pointed out that LCO is a reflection of
further assumptions of social regulations, standards and cognition. When it comes to the fact of
global warming and compulsory regulations on energy saving and emission cutting, LCO of
enterprises may honestly reflect the value of sustainable development and their own adaptability to

509
social changes [3]. To summarize, the factors are complex whereas existing researches failed to cover
their influencing magnitude and mechanism.
Speaking of the second issue, solutions provided to enterprises are listed below. Corbett and his
colleagues thought enterprises should extent the starting point of their operation from consumers to
stake holders. They also noted how important the whole life cycle design of production line based on
low-carbon conception is to thorough supervision of quality [9]. Parrish and his partners discovered
that low-carbon technologies like new energy and insertion of these technologies into enterprises
strategies will help realize sustainable development anchored with low-carbon development [2].
Engau and his teammates suggested that the main avenue to tackle with flexible policies on climate
change is to involve themselves into policy making so as to increase the flexibility of their strategies
[10]. Butner and his partners believed to acquire their competitive edge, they should decarbonize
every steps including product design, material purchase, production, sale, service supply and
recycling [11]. Zhang Yinghua and his partner put forward linear, net and annular development
patterns. They thought enterprises should realize LCO by ways like internal self-adjustment, internal
diverse extension and internal management.
Concluded from existing researches, though many are related to enterprises decarbonization (e.g.
eco-friendliness, circular economy, green consumption, energy saving etc.), few specifically deals
with LCO, let alone in-depth discussion on the working mechanism. Therefore, our research intends
to focus on influence factors of LCO of manufacturing enterprises and analyze their working
mechanism, hoping our research might give new inspiration for LCO of enterprises.

Research Method and Data Collection

Without a standard for decarbonization of enterprises, so far, there isnt a set of variables or
theoretical hypothesis ready to measure it. Content analysis and the main steps adopted are as follows:
Determine the unit of analysis, which generally include keywords and topics; Samples collection;
Analyze statistics. Measure the frequency of a specific unit by typical indicators like frequency,
percentage and average; Draw conclusions according to statistical analytical results, analyze them
and deduce possible conclusions and relations [13].
Questionnaires titled LCO of Manufacturing Enterprises were distributed and a random
sampling was conducted in manufacturing enterprises. 196 samples were of different sizes. Small
businesses (with 0-299 members) account for 79, 40.31%, medium (with 300-999 members) 58,
29.59%, large (with more than 1000 member) 59, 30.1%. Most of the receivers were administrators
in charge of specific environmental work (In cases when there is no such position in a company, more
often than not, senior managers would fill the questionnaire). These people know better about the
enterprises attitude towards LCO and the real status of the implementation as well as relevant
national policies and regulations, therefor the validity of the survey could be guaranteed.
Altogether250 questionnaires were given away and 211 collected thus resulting in 84.4% recycling
rate, among which 196 were valid so the valid rate is 92.9%.
First of all, descriptive statistical approach was adopted; and with analysis of frequencies and
percentages produced by SPSS, basic information of LCO of enterprises was brought together so that
distribution features were found. Secondly, according to statistical analytical results, the most
frequently occurred sentences or clauses were picked out and discussed whereby initial concept that
directed enterprises to the path of LCO was figured out. The next step is to summarize influence
factors and to accordingly construct the integrated model. Finally, the logical relations among those
factors and their impact mechanism were further explored.

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Model Construction

Descriptive Statistical Analysis

This research employed SPSS software to carry out descriptive analysis on the questionnaires
whereby four aspects that play a major role in influencing LCO of enterprises were summarized:
aspects of corporation, government, inter-enterprise cooperation and consumers. As space is limited,
only part of each aspect will be detailed in this paper:
From the aspect of corporation: The low-carbon awareness of a corporation fundamentally
determines the implementation of its LCO, which are also affected by the philosophy of low-carbon,
internal managerial support, pragmatic technologies and methods, knowledge-based talents, clarified
environmental criteria etc. Statistical results of the influence factors are shown in Table 1.
Table 1. The Status Quo of Internal LCO of Enterprises
Valid Cumulative
Frequency Percentage/%
Percentage/% Percentage/%
Very well 11 5.6 5.6 5.6
Good 53 27.0 27.0 32.7
How much do you
Doesnt care 4 2.0 2.0 34.7
know about LCO?
A little bit 112 57.1 57.1 91.8
Not at all 16 8.2 8.2 100.0
Cant agree
77 39.3 39.3 39.3
more
Agree 91 46.4 46.4 85.7
Do you agree to
Neutral 28 14.3 14.3 100.0
implement LCO?
Dont agree 0 0 0 100.0
Violently
0 0 0 100.0
against it
Yes, we have
Have you involved
and are
low-carbon values into 86 43.9 43.9 43.9
educating our
your corporate cultural?
staff.
Do you choose No 129 65.8 65.8 65.8
low-carbon materials? Yes 67 34.2 34.2 100
Do you own low-carbon No 139 70.9 70.9 70.9
technology researched
and developed Yes 57 29.1 29.1 100.0
independently?
Source: statistically from questionnaire
Statistical results suggest that most enterprises have paid some attention to LCO but few of them
know it well systematically. Only 43.9%, 86 companies being surveyed have involved low-carbon
concept into their corporate culture building. In terms of internal LCO, only 34.2% realizes
low-carbon purchase of materials, including transportation, sources of purchasing, e-purchasing etc.),
and only 29.1% owns low-carbon technology researched and developed independently that has
gained primary effects.
From the aspect of government: Political policies are of great impact on low-carbon building of
enterprises. Different policies will definitely lead to different results. Influences concerning
government are shown in Table 2.
Inferred from statistic results, policies concerning tax breaks and technological innovations are
most influential. Among 6 regulatory policies of carbon emission in the list, surveyed enterprises
regard criteria of punishment as the most effective one, which is followed by establishing market
access mechanism.
From the aspect of inter-enterprise cooperation: the cooperation between enterprises is an
adoptable avenue of low-carbon transformation. Enterprises could build a carbon-net based on their

511
close connections, whereby each could satisfy its demand and together create a multiple-win
situation. Shown in Table 3 are influences of inter-enterprise cooperation.
Table 2. Influences of Government Policies on LCO of Enterprises
N Percent of Response Percent of cases
Tax break and financial
164 25.6 83.7
compensation
Do government Policy support for innovation of
158 24.7 80.6
policies facilitate low-carbon technology
the development Secured financing Supply 113 17.7 57.7
of enterprises? a Assistance in talent import 98 15.3 50.0
Subsidy 107 16.7 54.6
Total 640 100.0 326.5
Establishing market access
126 21.4 64.3
mechanism
Setting criteria of punishment 127 21.5 64.8
What regulatory
Collecting carbon tax 110 18.6 56.1
policies can
Setting up low carbon evaluation
restrict high 114 19.3 58.2
mechanism
carbon activities of
Setting up environmental
enterprises? 112 19.0 57.1
supervision committee
Others 1 0.2 0.5
Total 590 100.0 301.0
Note: a. Dichotomous group tabulated at value 1; it was a multiple choice question so the total exceeds 196.
Source: statistically from questionnaire

Table 3. Influences of Inter-enterprise cooperation on LCO of Enterprises

N Percent of Response Percent of cases
Share of low-carbon
126 19.1 64.9
information
Cooperation of low-carbon
116 17.6 59.8
What kind of supplies and demands
inter-enterprise Cooperation of low-carbon
133 20.2 68.6
cooperation could technologies
facilitate Joint efforts in development of
101 15.3 52.1
low-carbon low-carbon production
transformation? a Low-carbon trades between
99 15.0 51.0
enterprises
Others 4 0.6 2.1
Total 659 100.0 339.7
Note: a. Dichotomous group tabulated at value 1; it was a multiple choice question so the total exceeds 196.
Source: statistically from questionnaire
Just 64 enterprises have inter-enterprise cooperation during their low-carbon development,
accounting for 32.7% of all samples, which means most enterprises havent.
From the aspect of consumers: As consumers awareness of low-carbon gradually increases, their
purchasing behaviors will consequently change, which will affect sales of products. Hence, the
consumption propensity to buy low-carbon products needs more attention from enterprises. Shown in
Table 4 are influences of consumers.

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 Table 4. Influences of Consumers on LCO of Enterprises
Do you feel the pressure of low-carbon transformation because of
consumers low-carbon awareness
Yes, a bit No. We
Yes, a lot. We but we will not
must transform dont Not sure. transform Not at all. Total
right away. have to in the short
hurry. term.
Does Yes 0 0 2 7 3 12
consumers No 29 73 39 27 16 184
low-carbon
awareness
give pressure Total 29 73 41 34 19 196
to high carbon
enterprises?
Source: statistically from questionnaire
In accordance with statistical results, most enterprises have realized the influence of low-carbon
consumption propensity. 184, i.e. 94% thought the rise of consumers low-carbon awareness puts
pressure on them, while only 12 held opposite opinion.
Classification of Initial Conceptions
In light of statistical analytical results, the most frequently occurred sentences or clauses were picked
out and discussed over whereby initial conceptions that directed enterprises to the path of LCO were
found out. Due to the large amount and overlapping of the sentences or clauses in our questionnaire,
after selection and discussions, 34 occurred most frequently (Shown in Table 5).
Based on the fundamental semantics, the sentences and clauses above were summarize and
classified and initial conceptions were concluded as below: low-carbon cognition, the will of
low-carbon construction, education of low-carbon awareness, intra-industry image, social
recognition, cost expectation, performance expectation, technology building, promotion of
government, restrictions from government and public expectation.
Model Building
After systematic integration of those initial conceptions, five influence factors of LCO of enterprises
were summarized: low-carbon consciousness, expectation of enterprises image, expectation of cost
and performance, the context combining institution and technology and public guidance. One thing
needing notice here is as for the first four factors, their influences were discovered by analysis on
questionnaire statistics while the influence of the three subfactors derived from public guidance were
deduced by selecting and summarizing.
Among these five factors, the first one belongs to the category of consciousness. To realize LCO,
manufacturing enterprises first need to develop the cognition of low-carbon conception. Only when
they agree with the conception and form a certain corporate culture, will they truly realize LCO. The
second and the third factors fall into the category of action. Actions are what turn cognition into
solutions. The last two factors deal with the environment. Environment is the background as well as
influence of cognition and actions. According to the connection of consciousness, environment and
action, we constructed an integration model of influence factors of LCO of manufacturing enterprises
(Shown in Fig. 1).

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 Cognition of Knowledge of LCO
low-carbon Attitude towards low-carbon transformation implementation
conception Requirement of low-carbon development is an opportunity of development.
Will of Pro and cons of requirement of low-carbon development coexist. How to make good use of it
1. low-carbon is what really matters.
construction Wait and see how other manufacturing enterprises go on with low-carbon development.
Education of
The enterprise (doesnt lay) lays emphasis on strengthening staff education of low-carbon
low-carbon
awareness in daily management.
awareness
The rank of comprehensive utilization rate of waste in a particular industry
Intra-industry The enterprise thinks low-carbon transformation will improve its image
image When the emission of pollutants conforms to the standards, to increase the image value, the
enterprise would take further steps to reduce the emission of pollutants
2 The enterprise is (not) certified to the criteria of ISO14001 environmental management system
In recent three years, the enterprise has (not) been rewarded for environmental protection or
Social
fined for harming the environment
recognition
The requirement of low-carbon development will increase the cost thus cut profits and it may
bankrupt low-margin enterprises

Costs of environmental protection management are high

Cost
expectation Green products are of high prices and low competitiveness thus difficult to seek economies of
3
scale

Performance Lack of noticeable economic performance

expectation Lack of management support, which hinders low-carbon transformation
Lack of institutional encouragement, which hinders the low-carbon transformation
Lack of clear environmental criteria for enterprises
The enterprise includes goals of low-carbon and energy saving into its institution and
Institution
supervises the implementation of the goals
building
Financial institution involves (doesnt involve) the internal management of carbon assets and
carbon debts
4 Lack of feasible technologies and methods, which hinders low-carbon transformation
Lack of knowledge- and skill-based talents
Inter-enterprise cooperation of low-carbon technology contributes to low-carbon
Technology construction.
building Inter-enterprise cooperation of collaborative low-carbon products development contributes to
low-carbon construction.
Inter-enterprise cooperation of low-carbon programs contributes to low-carbon construction
Government gives policy support to innovations of low-carbon technology
Government provides financing guarantee for low-carbon development
Promotion of
Government assists in importing high quality talents in low-carbon field or organizing expert
government
counselors and scientific research institutions
Government rewards bonus to low-carbon transformed enterprises
Government establishes market access mechanism to limit high carbon activities
5
Restrictions Government sets up strict carbon punishment standards to limit high carbon activities
from Government collects carbon tax to limit high carbon activities
government Government sets up low-carbon evaluation mechanism to limit high carbon activities
Government sets up environmental supervision committee to limit high carbon activities
Public
The rise of consumers low-carbon awareness puts pressure on high carbon enterprises
expectation
Source: author edited

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 Figure.1 an integration model of influence factors of LCO
Source: author edited
According to attribution theory [14], the causes of behaviors are explained as internal and external
factors. Internal factors include cognition, attitude, effort, ability etc. while external factors entail
social environment, atmosphere and so forth. The former is stable and the cause of behaviors whereas
the latter is uncertain and adjusts more than determines behaviors. Based on this theory, the
mechanism of each influence factors in the model was further explored.
Low-carbon consciousness (determined by factors like cognition of low-carbon conception, will of
low-carbon construction and education of low-carbon awareness) is the internal factor that arouses
enterprises motive of LCO, as well as the inducing factor. Low-carbon psychological consciousness
can be formed in three ways: campaign of environmental protection, including cognition the concept
of environmental protection conveyed in video and audio materials, pictures, brochures etc.; staff
training on low-carbon management, ranging from utilization of low-carbon technologies to
low-carbon awareness in daily management; enterprises will of low-carbon construction out of
social responsibility. The hierarchy of these three subfactors will affect the consistency of
consciousness and actions. When enterprises will of low-carbon construction out of social
responsibility takes the lead, low-carbon psychological consciousness is influential in LCO; instead,
if the awareness development stagnates at cognitive level, low-carbon psychological consciousness
will have little impact.
Expectation of cost (determined by expectation of cost and expectation of performance) and
performance and expectation of enterprises image (determined by Intra-industry image and social
recognition) are internal factors connected with activities that are decisive in the visualization of
LCO. Only if willing enterprises take actions, will LCO be realized.
The context combining institution and technology (with subfactors like institution building and
technology building) and public guidance (with subfactors like promotion of government, restrictions
from government and public expectation) are external factors whose influence is enhanced or
diminished by the connection between consciousness and activities. When the connection is strong,
i.e. the will or social responsibility plays the main role, external factors hardly matter. When the
connection is weak, i.e. the awareness development stagnates at cognitive level, external factors will

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make a big difference. Therefore, we infer that the adjusting effect of external factors is related to
low-carbon consciousness. If the latter is strong, so is the former and vice versa.

Implementation Paths
Some feasible avenues from the aspect of government, enterprises, inter-enterprises cooperation and
consumers were found out by exploring the working mechanism of the five factors, namely
low-carbon psychological consciousness, expectation of enterprises image, expectation of cost and
performance, the context combining institution and technology and public guidance, that influences
LCO of enterprises.
From the Aspect of Government
Government should introduce encouraging and managerial policies of low-carbon transformation
and employ tax breaks, financial aids, government purchases and other measures. Besides, it should
organize environmental supervision committee to evaluate, calculate and disclose enterprises
carbon emission, thus quantify the damage to environment.
From the Aspect of Enterprises
The primary mission of enterprises is to engage low-carbon conception into their corporate cultures
so that it will gradually become widely accepted and observed by all staff members during long term
production and service. Manufacturing enterprises must endeavor to realize decarbonization of
means of material purchasing and selection and innovate low-carbon technology for production
process.
From the Aspect of Inter-enterprise Cooperation
The low-carbon course involving different enterprises could be aided by intra-industry platform of
information and resource management. With such a platform, enterprises could not only share
low-carbon information and resource, but also collaborate in developing low-carbon technologies
and products and studying low-carbon programs.
From the Aspect of Consumers
Promotion of low-carbon consumption and the rise of civilians low-carbon awareness are important
solutions to forming low-carbon development pattern and to facilitating low-carbon transformation.
Since products all end in market to be sold to consumers, the rise of civilians low-carbon awareness
will definitely deeply influence the way of production and management of enterprises.

References
[1] Lynne M. Andersson & Thomas S. Bateman. Individual Environmental Initiative:
Championing Natural Environmental [J]. Academy of Management Journal, 2000(04): 548-570.
[2] Parrish Bradley D., Timothy J. Foxon. Sustainability Entrepreneurship and Equitable
Transitions to a Low-carbon Economy [J]. Greener Management International, 2009(55):47-61.
[3] Niki Frantzeskaki et al. Social-Ecological Systems Governance: From Paradigm to
Management Approach, Nature and Culture [J]. Berghahn Journals, 2010 (1): 8498.
[4] Adam R. FremethBrian K. Richter. Profiting from Environmental Regulatory Uncertainty:
Integrated Strategies for Competitive Advantage[J].California Management Review,
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[5] Robert D. Klassen and D. Clay Whybark.1999, The Impact of Environmental Technologies
on Manufacturing Performance [J]. Academy of Management Journal, 1999, 46(2): 599-613.

516
[6] Kitazawa and Sarkis. The relationship between ISO 14001 and continuous source reduction
programs [J]. Production Management, 2000, 20(2): 225-248.
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[8] Battisti,G. Innovations and the economics of new technology spreading within and across
users: gaps and way forward[J].Journal of Cleaner Production,2008,(16): 22-31.
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statistical process control techniques [J]. Eur. J. Operation. Res.2006, (136): 68-83.
[10] Bradley D. Parrish and Timothy J. Foxon. Sustainability entrepreneurship and equitable
transitions to a low-carbon economy[J]. Summer Conference 2009 on CBS - Copenhagen Business
School, 2009, (7): 17 - 19.
[11] Christian E,Volker H. Effects of regulatory uncertainty on corporate strategyan analysis of
firms responses to uncertainty about post-Kyoto policy[J]. Environmental Science & Policy, 2009,
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optimize supply chain efficiencies[J]. IBM Global Services. 2008:23-30.
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 2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Externality of Internet Companies' Scientific and Technological

Innovation in the Complete Information Static Game

Wen XIN*, Yun-fan WU and Zhi-luo GUO

1
Beijing University Of Posts And Telecommunications, College of Economics and Management,
Beijing 100876, China
*Corresponding author

Keywords: R&D, Externality, Complete information static game.

Abstract. The purpose of this study was to explore in Internet industry whether a companys R&D
choice is affected by other companies choices and point out the scope it matters , futher , determine
the best R&D strategy on different occasions. The paper established a rectified Cournot model. Based
on the traditional model, the paper added two parameters: knowledge spillover effect and knowledge
absorptive capacity. The paper argues that the externality of R&D doesnt exist when the above
parameters changes within a certain range. Thus, the paper put forward that the government should
strengthen patent protection and supply financial support to encourage R&D. This study innovatively
applied rectified Cournot model , and discussed R&D from the microscopic perspective.

Introduction
Put forward with the development of society, our country's demographic dividend is gradually
disappearing, original extensive labor intensive economic development mode has been unable to
adapt to the social development [1]. In addition, scientific and technological innovation has become
key support to improve the comprehensive national strength, and powerful leads to social mode of
production and life style changes and progress. Therefore, the Chinese government is also actively
promoting enterprise's scientific and technological innovation. General secretary Xi Jinping in 2015
proposed "The foundation of the enterprise's sustainable development and the way to win the market
lies in innovation."
The current China's Internet industry is booming, but there exists some problems: most small
Internet companies lack of R&D, which result in shortage of competence and serious homogeneity.
So, take appropriate efforts and explore what have influence on R&D of Internet companies matters.
Lots of researchers pay attention to this, often analyzing by building models or empirical research
from perspective of Enterprise Cluster. However, All in all, on externality of R&D, current research
concentrate on collaborative cluster, and hardly discuss the situation under non-cluster collaboration.
So, we apply to the Complete information static game theory, optimizing the Cournot Model to
analyze the impact externality have on R&D. Furthermore, put forward the advice on how
government promotes the R&D.

Literature Review
By reading the relevant literature and data, we found that the influence of Internet innovation of small
and medium-sized enterprises is divided into external factors and internal factors, external factors
including host clusters, social environmental factors, cultural and historical traditions, customs and
so on. [2] think that internal factors of product innovation, including the enterprises decisive board
of leader, product information and management organization. [3], through empirical analysis,
pointed out that the internal R&D capital stock contribute most to scientific and technological
innovation performance.

518
 There are several conceptions about cluster collaboration: Agglomeration effect failes to promote
R&D, on the contrary plays a negative role. [4] draw a conclusion through questionnaire in Jiang Su
Province. [5] argues that only the cooperation and interaction can improve innovation performance.
[6] [7] [8] [9]further pointed out that the gathering to generate knowledge spillovers, and to benefit
the third party companies. [10] study the technology spillover impact on Enterprise R&D investment,
they think that knowledge spillovers can enable enterprises to access to the results of research and
development of other R&D companies at no cost, but this disadvantage to the long-term development
of enterprises, enterprises should still adhere to the independent research and development. [11]
further through theoretical analysis pointed out that independent research and development is a
necessary way to enhance the competitiveness of enterprises.
R&D decision-making are mainly analyzed by the Game of Theory. [12] supposes that SMEs
should make full use of the advantages competing with large enterprises. [13] build Game Matrix
Model of duopoly enterprises adding absorptive capacity and Knowledge Spillover , explore whether
R&D and what R&D mood to choose.
However, there is a corresponding analysis of knowledge spillover, scholars mainly research and
discuss from the angle of cluster, which in the study of non-cluster enterprise knowledge spillovers
have certain limitations. When analyzing the game of R&D between enterprises from the perspective
of game theory, there is no corresponding policy suggestions about the results of the study. In
summary, from the angle of two non-cluster of Internet companies, we analyze their R&D game with
the aid of the game theory, and put forward the corresponding policy recommendations.

Model Assumptions
There are a lot of High-tech Industry markets which are oligopoly, such as communications
industry ,where market share is mainly dominated by oligarchs. The knowledge spillover generated
when the China Mobile innovate technically have an impact on the China Unicom. We abstract a
duopoly market, where two companies are in the same conditions and have the same product.
Assumption :the yield of A is q1 , the yield of B is q2 , market output is Q= q1+q2 .Market-clearing
price P the function of market output P=P(Q)=b-Q,b>0. The initial unit cost of the two are a,b>a>0.
We suppose R&D exists Knowledge Spillover, that is the new knowledge not only promote itself, but
also suppress other companies innovation, Knowledge spillover coefficient is . We assume that the
system of Knowledge Spillover is determined by surroundings. We assume absorptive capacity and
innovation fund of A are and ,which of B are and . And absorptive capacity is function of
innovation fund, y=0,k=0,that is .
If both company innovate : , , , , Similarly
.And they decide on their output simultaneously.

Cournot Model of Two Companies

If A companies choose not to research and development, then , , .
In this case, if B companies also choose not R&D, then , , .
According to the Cournot model, in this game, A and B enterprises are two players, due to the
limitation of production capacity, they have an upper limit of production, so the benefit of the game is
two manufacturers of their own interests of course, that their sales revenue minus the cost of each,
according to the set of circumstances. They are:

519
 Above formulas are net income of two enterprises
In this case, if B companies choose R&D, then . At this point the benefit
functions of the two enterprises are:

Above formulas are net maximum profit of two enterprises.

If A companies choose to research and development, then , , .
In this case, if B companies choose not R&D, maximum net profit of two enterprises at this point
are:

In this case, if B companies also choose R&D,

then: , , so:

To order , we get the maximum profit functions when two enterprises both research and
development:

To sum up, the R&D investment strategy of A and B enterprises benefit matrix is shown in Table
1, and we will make Equilibrium Analysis:
Table 1. Table headings

520
Equilibrium Analysis
Case 1: A choose not to innovate
Assuming B earns when do not innovate, otherwise, earns .

> ,the best strategy for B is not to innovate

< , the best strategy for B is to innovate
,B should choose to innovate
, B should not choose to innovate
It can be calculated from the front: <
So ,B choose not to innovate
Case 2: A choose to innovate
Assuming B earns when do not innovate, otherwise, earns

> ,the best strategy for B is not to innovate

< , the best strategy for B is to innovate
Hypothesis: A,B innovate is a Nash Equilibrium, meeting the following conditions:

When , , , are fixed, should follow:

Similarly, when , , , are fixed, should follow:

Conculsion
The article analyzes the principles of economics about R & D decision-making on the foundation of
duopoly model. The phenomenon that company may not innovate because of other companies R&D
does not happen. Two companies decide simultaneously. R&D renders the technology of products
higher. To some extent, it proves the necessity of development of society. Whether a company choose
to innovate depends on contrast of revenue under different occasions, also is concerned with
absorptive capacity and Knowledge Spillover which are assumed previously.

521
 By solving the model, we think: When Knowledge Spillover and absorptive capacity in itself
reaches a certain situation, the free rider phenomenon is not a key factor that influences technology
innovation of small and medium-sized enterprises in our country, so it also provides some
suggestions for our government to promote the innovation of science and technology of Internet small
and medium-sized enterprises: on the one hand, the government can improve the corresponding
policies and laws, such as strengthening the patent protection, strengthen the punishment of illegal
use of others patent, the control of knowledge spillover and self-absorption capacity in the range of
free rider phenomenon can be prevented., so as to improve the enthusiasm of independent research
and development of Internet small and medium-sized enterprises; on the other hand, considering the
pressure in the economic aspects of the enterprise R&D, may be appropriate to increase support in the
economy, alleviate the economic burden of enterprises for research and development, such as
increased extra deductions for businesses R&D expenses. The establishment of small and medium
enterprises tends to support the development of science and technology special funds, etc.

Acknowledgement
Research Innovation Fund for College Students of Beijing University of Posts and
Telecommunications.

References
[1] Wei Lin. [J]. Management World,2013,No.24110:95-105. In Chinese.
[2] Zhao-quan Wang. Factors that affect product innovation and Countermeasures [D]. Nanjing
University of Science and Technology,2002. In Chinese.
[3] Hu Li, Hong Fan,Jian-fen Qu. [J]. Science & Technology Progress and
Policy,2010,v.27;No.24602:109-112. In Chinese.
[4] Jie Zhang, Zhi-biao Liu, Jiang-huai Zheng. [J]. Management World,2007 (6). In Chinese.
[5] Crouch and Farrell. Breaking the path of institutional development alternative to the new
determinism(Z).2002
[6] Acs,Z.D.Audretsch and M.Feldman, and M.Feldman,[J],The A-merican Economic
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[8] Feldman,M., [J]. Springer,1994.
[9] Feldman,M., and D.Audretsch, [J], European Economic Review,1993,43(2),409-429
[10] Shuai Zhao,Bo Chen. [J]. Market Modernization,2015,No.79318:93. In Chinese.
[11] Yong-jian Hua. [J]. Economy and Management,2005,12:59-61. In Chinese.
[12] Li-min Cai, Yan Liu. [J]. Popular Science & Technology,2013,v.15;No.16606:298-301. In
Chinese.
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Chinese.

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2016 Joint International Conference on Economics and Management Engineering (ICEME 2016) and
International Conference on Economics and Business Management (EBM 2016)
ISBN: 978-1-60595-365-6

Improvement and Innovation of the Current Financial Report

Model under the Fair Value Measurement
Yong-chen LI, Xiao-hui CHANG
Department of Economic Management In North China Electric Power University,
Baoding City, Hebei Province, China

Keywords: The fair value, Comprehensive price changes, The financial report, The decision
usefulness.

Abstract. Currently, It is still common concern on accounting information quality and useful
information for decision financial reports provided. The current financial report mode in China, the
historical cost given priority to and the fair value complementary, has a number of defects. In 2006,
our country enterprise accounting standards of fair value measurement was introduced. The
government issued a formal "accounting standards for enterprises no. 39-fair value measurement in
2014. It not only expands the application of fair value accounting system in our country but also
changes the content and form of the financial statements. The article explores the improvement and
innovation of the current Financial Report Model under the Fair Value Measurement. In the final
accounting report reflect the fair value of the project, such as Fixed Assets, to provide useful
information for decision to decision maker.

Introduction
The financial report is the written summary of the enterprise economic activities[1]. On the one
hand, financial report truthfully reflect the financial position and operating results of an enterprise,
on the other hand, it can provide the relevant financial analysis to financial report users. With the
change of social economic environment, the study of accounting measurement is also constantly
explored by the community, and the form and content of the financial report also constantly
adjusted[2]. In 1938, the United States established the Generally Accepted Accounting Principles
used to standardize the financial statements of listed companies. Bell suggested changing the
measurement model of fixed assets, from the historical cost measurement to the replacement cost
measurement in 1961. Research has revealed the fact that the future cash flow discount model can
reflect the performance of enterprises (CICA, 2000). Studies revealed the criterion definition of fair
value for the first time in the financial accounting standards bulletin no.157-fair value[3]. (FASB,
2006). In 2007, the international accounting standards committee released the latest "fair value"
rules. [4]
In 2006, our country enterprise accounting standards of fair value measurement was introduced.
The government issued a formal "accounting standards for enterprises no. 39-fair value
measurement in 2014. It not only expands the application of fair value accounting system in our
country but also changes the content and form of the financial statements. However, the financial
report still cannot reflect the fair value of some project, for example, when the fair value of fixed
assests rising [5]. The article explores the improvement and innovation of the current Financial
Report Model based on the target theory and the accounting information quality requirements of
financial report, and put forward some suggestions for improving the financial report under the Fair
Value Measurement mode.

Rationale
The Financial Report Goal Theory
Financial report is the summary of the enterprise economic business activities and financial
reporting goals has a profound impact on financial reporting mode.
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 With the development of social economy, the theory of financial goal is developing.
The accounting goal theory of our nation mainly have entrusting liability viewpoints and useful
viewpoints of policy-making, which put effort to provide accounting information of enterprise
financial position, operating results and cash flows and reflect the industry management fiduciary
duties to perform, to help users of financial reports to make economic decisions. In order to achieve
such a financial report goal, financial report must give stakeholders to provide reliable, relevant and
timely financial reporting information under the Fair Value Measurement mode[6].
The Quality of Financial Reporting Information
The quality of financial reporting information characteristics includes reliability, relevance,
understandability, comparability and substance over form, importance, cautious and timeliness and
so on.
In the current financial reporting mode in our nation is given priority to with the historical cost
and the fair value is complementary. The historical cost mainly emphasizes on reliability. However,
the reliability of volatile asset hold for long time is mainly reflected in the real purchase price not
the real current value. Fair value mainly reflects the correlation, related to the market, the policy
makers, and the future, to meet the requirements of the stakeholders in terms of timeliness.

Method
The Current Financial Reporting Model in China
The existing financial reporting mode, in fact, is based on historical cost, fair value complementary,
a variety of fair value measurement attributes of incompleting. Final, tradable financial assets and
the investment real estate are measured by fair value, the fixed assets and intangible assets are
measured by net worth after considering impairment in the balance sheet. Part to changes in fair
value has been recognized as the rights and interests, was confirmed as part of the profits and
losses.
A New Economic Environment Faced with the Financial Reports of Enterprises in China
Recently, Great changes have taken place in our social economy and a new economic environment
is faced with the financial reports of enterprises in China.
The Economic Is Booming and Age of Big Data Is Coming. In recent years, the fair value of the
assets gets easier with the market economy developing, the reform of shareholding system
deepening, and the development of assets appraisal industry valuation technology improving.
Business diversification stakeholders require to improve the quality of financial information.
Compared with the historical cost, fair value can provide more timely financial information
The Shortcomings of the Current Financial Report Mode in China
The financial information financial report provided has some disadvantages. The financial
information is Imperfection. Some assests is still measured by the historical cost when the value is
rising. Most of the assets in accordance with the historical cost measurement cannot be measured in
time and be reflected exactly.
The improvement of All financial projects are measured by fair value as a complement On the
basis of the current financial statements in the next balance sheet (Table1) and text note (Table 2),
we will make some improvement by the fair value.

524
 Table 1. Balance sheet.
Prepared by: DWYYMMDD

It is important to reflect the fair value of some assests in detail. Let us give an example to reflect
each fixed assests value.
Table 2. Changes in fair value of fixed assets table.
AT END OF YEARAT AT BEG.OF YEAR
items
(fair value) (fair value)
Fixed assets A
Fixed assets B
..
TOTAL Fixed Assets

Conclusions
We can draw the following conclusions by comparing and analyzing the above report model
The current financial report mode has advantages and disadvantages.
In view of the impact and objective reality in China, mainly used in the accounting practice in our
country at present stage to reduce the influence of price changes in the traditional financial
accounting practices Generally speaking.
In western countries, there a trend to adopt the Price Variation Accounting Model replacing the
historical cost accounting.
It is essential to adopt the price variation accounting model considering the characteristics of the
price change under the inflation situation.
Different enterprise can adopt different accounting mole to reflect the influence of the value
variation. We can clearly know the fair value through the report improved.

525
References
[1] Qi-sheng Zhou in Chinese. Some Problems about Preparation of Retail Price Index [J]. Journal
of Xiamen University, 1957:96-110.
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Management, 1979:36-40
[3] Cai-xiaWei in Chinese. Price Variation Accounting and Fair Value Measurement[J].
Accountant, 2011:7-8
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Finance and Accounting. 2014, 12:76-77.
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526
Author Index

Akhras, C., 75 Gong, S.-Y., 496

Ali, A. A., 354, 360 Guo, M., 434
Ali, S., 347 Guo, Y., 502
Guo, Z.-L., 518
Bai, Q.-Y., 135
He, S.-K., 384
But, F., 360
Hou, P.-X., 51
Hu, B.-Q., 420
Chang, S.-C., 372, 448 Hu, N.-L., 246
Chang, X.-H., 523 Hu, T., 212
Chen, D.-L., 19 Hu, Z.-N., 246
Chen, J.-W., 195 Huang, H.-H., 15
Chen, L.-S., 372 Huang, J.-Y., 129
Chen, X.-B., 390 Huang, K.-L., 448
Chen, X.-Y., 39 Huang, Q., 157
Chen, Y.-F., 470 Huang, S.-N., 292
Cheng, X., 70
Cong, S.-S., 149
Jin, H.-L., 39
Cui, Q.-M., 401
Jin, Y., 470
Cui, S.-R., 342
Kamran, A., 347, 354, 360
Deng, Z.-W., 390 Kang, R., 1, 8, 46, 453
Ding, R.-M., 267
Ding, X., 459
Le, X.-J., 64
Dong, G.-M., 372
Lee, C.-C., 277
Dong, J.-L., 286
Lei, D.-Y., 481
Du, X.-C., 464
Li, C., 140
Duan, B.-Q., 267
Li, C.-M., 91
Li, G.-Q., 246
Fan, C.-C., 51 Li, H., 161
Fan, Y.-H., 200 Li, J.-M., 311
Fang, H., 34 Li, L.-H., 491
Fang, W., 120 Li, M.-Y., 200
Feng, C., 453 Li, W., 311
Fu, M., 19 Li, W.-G., 39
Fu, R., 475 Li, X.-T., 39
Li, Y.-C., 523
527
Li, Z., 207 Tahir, H., 354
Liang, B., 411, 430 Tan, J., 331
Lin, G.-C., 29 Tan, M.-R., 161
Lin, H.-C., 377
Liu, B., 39 Wang, B.-H., 390
Liu, H., 101, 420 Wang, B.-J., 395
Liu, J., 149 Wang, C.-J., 80
Liu, J.-P., 149 Wang, D., 453
Liu, J.-X., 231, 407 Wang, D.-D., 509
Liu, Q.-Y., 481 Wang, H.-J., 496
Liu, W.-Y., 307 Wang, H.-X., 91
Liu, X.-F., 282 Wang, H.-Y., 407
Liu, Y., 212, 324 Wang, J., 261, 271
Liu, Y.-H., 39 Wang, L.-C., 261, 271
Liu, Y.-L., 19 Wang, L.-H., 114
Lu, C., 317 Wang, L.-Y., 324
Luo, L., 212 Wang, M., 218
Luo, S.-H., 491 Wang, P., 377
Luo, X.-X., 19 Wang, S.-B., 336
Lv, L.-C., 195 Wang, T., 424
Wang, X.-T., 39
Ma, J., 109, 415 Wang, Y., 415
Meng, X.-H., 129 Wang, Y.-C., 441
Wei, X., 401
Nganjo, W., 502 Wu, N., 129
Wu, S.-C., 470
Wu, Y.-F., 518
Pan, J.-Y., 51
Pan, S.-M., 188 Xiang, Y.-J., 231
Pan, W.-E., 101 Xiao, T.-M., 487
Pan, W.-R., 188 Xin, W., 518
Xu, X.-P., 481
Qi, J., 298 Xu, Y.-Y., 420
Qin, B.-Y., 282 Xue, L., 255
Qiu, M., 453
Yan, C.-X., 261, 271
Ren, B.-P., 1, 8 Yang, S.-L., 282
Ren, H., 415 Yao, L., 441
Yao, W., 395
Shao, F., 97 Yao, X., 101
Shao, R.-Y., 407 Yi, T., 200
Shen, G.-M., 336 You, L.-L., 424
Shi, B.-B., 453 Yu, J.-H., 64
Shi, H.-C., 255 Yuan, C.-C., 336
Shoukat, F., 347 Yuan, J.-Y., 218
Song, Y., 120 Yuan, X.-M., 218
Stalker, I., 97
Sun, J., 286 Zang, X.-W., 407, 420
Sun, Q.-W., 384 Zeng, S.-L., 292
Sun, S.-Y., 372, 448 Zhang, A.-M., 307

528
Zhang, C.-L., 407 Zhao, L., 267
Zhang, C.-P., 46 Zhao, T., 34
Zhang, C.-X., 180 Zhao, X.-L., 149
Zhang, G.-Q., 200 Zhao, X.-Y., 407
Zhang, H., 401 Zhou, F.-Y., 174
Zhang, J.-L., 85 Zhou, Y., 222
Zhang, L.-N., 237 Zhou, Y.-T., 59, 174
Zhang, X., 169 Zhou, Z.-X., 282
Zhang, Y., 169 Zhu, M.-R., 120
Zhang, Y.-G., 481 Zhu, Q.-L., 407, 420
Zhang, Y.-Q., 34 Zhu, Y., 59
Zhao, J.-F., 188 Zhu, Y.-M., 365
Zhao, J.-Z., 481 Zhuo, J., 174

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