Zhou Muzhi
Professor at Tokyo Keizai University
Editor’s note:
What factors contributed to the growing globalization? Why did megalopolises emerge out of a sudden in China? What put the development of the electric vehicle industry on a fast track? In October, Professor Zhou Muzhi from Tokyo Keizai University delivered a speech at the 2023 Changsha International Green Intelligent Construction and Building Industrialization Expo & World Construction Conference held in Changsha. He used the concept of the Moore’s Law Drive to explain the underlying logic of these questions and provided insights into the prospects of the construction industry.
1. Era driven by Moore’s Law
As a graduate of Hunan University, I am delighted to attend the conference co-hosted by my alma mater today.
I majored in automation at Hunan University. I study economics now, but fundamentally I study IT. In the early 1980s, when I was a student at Hunan University, one book that inspired me was “The Third Wave,” which predicted many scenarios of the information society. Forty years later, most of those predictions became reality.
Self-proclaimed futurist Alvin Toffler’s accurate prediction was backed by Moore’s Law. Coined in 1965, Moore’s Law posited that the number of transistors on a semiconductor could double every 18 months, and the price of semiconductors could halve. Since then, human society has evolved at an unprecedented pace under the influence of Moore’s Law.
The continuous evolution of semiconductors has given rise to numerous products and services. From hardware like computers and phones to network services like email, web pages, search engines, social media platforms like Facebook, WeChat, and Twitter, streaming services like YouTube, Netflix, and TikTok, online shopping platforms like iTunes, Amazon, Taobao, SHEIN, digital currencies like Bitcoin, AI applications like ChatGPT and autonomous driving, all these were products and services that didn’t exist in the past. It’s worth noting that most of the companies creating these products and services are tech startups, and it is these emerging enterprises that are leading global revolutionary development. I define this stage of human development as the “era driven by Moore’s Law.”
2. Three hypotheses of new industrialization and strategies for megalopolis development
Thirty-five years ago, when I studied economics in Japan, my research focused on how to explain the new industrialization in Asia. Many countries had gained independence after World War II, but no third-world country had achieved industrialization after several decades. It wasn’t until the 1980s that the Four Asian Tigers suddenly surged. At that time, economists worldwide were trying to explain this phenomenon from the perspectives of systems and culture, but they couldn’t provide a clear explanation.
However, looking at this phenomenon from my own background in engineering, I believed that this was an exemplar of the influence of Moore’s Law on the industrialization process. Therefore, in my doctoral thesis, I explained the industrialization in East Asia, including China, through three hypotheses.
The first hypothesis is that Moore’s Law was applied to industrial equipment, with a lot of industrial technology and knowledge integrated into the machinery, opening up new paths for industrialization. After I graduated from university, I participated in the construction of the second phase of Baosteel and bore witness to how advanced equipment imports could lead to a leap in the steel industry’s capabilities. In my doctoral thesis, I coined the term “mechatronics,” combining the words “mechanical” and “electronics,” and added the word “revolution” to emphasize its importance. The title of my doctoral thesis was “The Mechatronics Revolution and New International Division of Labor – Asian Industrialization in the Modern World Economy.”
The second hypothesis is the uniqueness of the electronics industry as the first Moore’s Law-driven industry. The electronics industry was quite weak before the advent of semiconductors, but by the 1980s, it had become the fastest-growing and the largest industry in the world. I also discovered that the electronics industry has the highest level of trade. It was the expansion of the electronics industry supply chain that facilitated the industrialization of the Four Asian Tigers and other East Asian countries.
The third hypothesis is that with the penetration of semiconductors, there will be an increasing number of industries with a rising relevance to Moore’s Law, transforming into high-trade-rate global supply chain industries, much like the electronics industry. Today, when we analyze the correlation between Moore’s Law and global exports in goods, we can see a “perfect correlation” between the two. In other words, as the cost-effectiveness of semiconductors continues to improve, more and more industries are being driven by Moore’s Law, leading to a continuous acceleration of global trade volume. We can observe that 70% of today’s global trade has been generated since 2000, and this is the underlying logic of globalization.
Based on the three hypotheses mentioned above, in 2001, I made a prediction that the Pearl River Delta, the Yangtze River Delta, and the Beijing-Tianjin-Hebei region would become three large industrial clusters that serve global supply chains. These clusters would develop into the three major megalopolises driving China’s economic and social development. In 2001, at the China Urbanization Forum jointly organized by the National Development and Reform Commission, the Japan International Cooperation Agency, China Daily, and the China Association of Mayors, scholars suggested that China should embrace the development of big megalopolises. It marked a significant breakthrough during an era when the focus was primarily on small towns and grand strategies for urbanization.
Since 2001, China’s urban population has doubled, its actual built-up area has increased by three fold, and its GDP has grown eleven times. As a significant number of people have moved to the Pearl River Delta, the Yangtze River Delta, and the Beijing-Tianjin-Hebei region, megalopolises have already been created in China.
3. Three evolutions of electric vehicles
In 2009, I wrote an article for Xinhua News Agency’s Global magazine titled “Japan: The Collapse of the Electronic Kingdom?” In that article, I predicted the impending collapse of Japan’s booming electronic industry at the time. Today, we can see that industries like semiconductors, home appliances, personal computers, mobile phones, LCDs, and solar cells, which used to be Japan’s leading industries, have declined and even disappeared in the country.
In 2010, I wrote another article for the Global magazine titled “Toyota’s Real Crisis,” predicted that Toyota, which had reached its peak under the old industrial environment and production model, would face challenges from emerging electric vehicle manufacturers like Tesla and BYD. My prediction has become a reality 13 years later today.
What is the current status of electric vehicles? In the first half of 2023, among the top 20 best-selling electric vehicle models globally, 13 were from Chinese companies, accounting for 57% of total sales. Among the top 20 electric vehicle manufacturers with the highest sales worldwide, China had 8 companies, making up 49% of total sales. Electric vehicles have completely transformed the landscape of the automotive industry, and this year, China has become the world’s largest exporter of automobiles.
In terms of market value, the most eye-catching electric vehicle makers are Tesla and BYD. Tesla locates its flagship factory in China and BYD is a Chinese automaker. Tesla is the world’s most valuable automaker and BYD is the third, the two accounting for 41% of the market value of 62 large automakers.
Electric vehicles have triggered three major revolutions. The first is the energy revolution, which not only replaced traditional combustion engines but also allowed for the seamless integration of renewable energy with vehicles. The second is the AI revolution, with some estimating that the market value of Tesla’s autonomous driving technology alone could exceed $10 trillion in the future. The third is the manufacturing revolution. Traditional internal combustion engine vehicles have approximately 30,000 components, and electric vehicles eliminated about a third of them by doing away with the engine. Tesla then further reduced the remaining components by over half. This represents a profound revolution in the automotive manufacturing process.
4. Led by tech start-ups
All of this is because Moore’s Law has extended into the automotive field. So, can Moore’s Law extend into the construction industry? That depends on whether the construction industry can give rise to powerful technology and innovation-driven enterprises. As mentioned earlier, it’s the tech startups that are leading the Moore’s Law-driven era today, and the key constitutes in the combination of technology and entrepreneurship. Both Tesla and BYD, two companies revolutionizing the automotive industry, are tech startups.
In 1989, when Japan’s economy was on the crest of a wave, there were seven Japanese companies among the global top 10 by market capitalization, but there was no sci-tech company. The most technologically advanced company on the list was IBM, founded in 1911 and nearly 100 years old back then. Now, looking at today’s global top 10 companies by market capitalization — Apple, Microsoft, Google, Amazon, NVIDIA, Tesla, Facebook, TSMC — eight of them are innovation-driven companies. Among them, the oldest is Microsoft, founded in 1975, and the youngest is Facebook, established in 2004.
The rules for companies’ arena have changed, as tech start-ups have ushered in a new era.
5. Three fundamental problems facing construction industry
So, what challenges does the construction industry face today? I believe there are three fundamental problems that need to be addressed. The first is high energy consumption in buildings, the second is short building lifespans, and the third is low efficiency and high costs in the construction process. One of the reasons for the high costs is the low level of industrialization.
Prior to the COVID-19 pandemic, China’s three-year concrete consumption was 1.5 times that in the U.S. over the past 100 years. In 2017, China’s annual cement production was1.4 times that of all other countries combined in the world. China’s construction industry has been a global leader in terms of scale.
Because of short lifespans, there are a lot of buildings and also a lot of demolitions. In 2020, China generated an astonishing 3 billion metric tons of construction waste, equivalent to 30% to 40% of the total urban waste in the country. Moreover, the resource utilization rate of construction waste in China is very low, at only 5%.
The experience of Tokyo points to another issue. In 2010, among carbon dioxide emissions in Tokyo, 53% came from buildings, 33.7% from the transportation sector, and 10.9% from the industrial sector. Tokyo is a poster child for energy efficiency and emissions reduction. By 2021, after a decade of efforts, the proportion of carbon emissions from the transportation sector and the industrial sector had been reduced to 16.5% and 7.2%, respectively. In contrast, the proportion of emissions from buildings had risen to 73%. Buildings, as major energy consumers, have seen slow progress in energy efficiency and emissions reduction.
6. Construction industry set to transform into a Moore’s Law-driven industry
At present, there are 98 large-scale listed construction companies globally, but their share in the total market capitalization of global companies listed on main boards is only 0.7%. In the market capitalization of these 98 construction companies, Chinese enterprises account for only 13%, ranking behind the U.S. at 30% and France at 15%. This is a peculiar phenomenon: China is the world’s largest construction market, yet it has not created any top construction companies. In Japan, surprisingly, there are no construction companies among the country’s top 50 companies by market capitalization.
The figures above illustrate that the construction industry, one of the largest industries globally, has lost its luster in the capital market due to a lack of revolutionary innovation.
There are no construction companies among the 1,178 global unicorns, and it seems that there is no tech startups in the construction sector.
There is a long way ahead for the construction industry, and it must significantly reduce construction costs, substantially lower energy consumption, achieve energy self-sufficiency, and, of course, provide people with more comfortable and better living environments.
Finally, I want to share another prophecy. I believe that the construction industry will also become a Moore’s Law-driven industry. The low-carbon revolution, material revolution, and industrial and trade revolution will open up new prospects for the construction industry. I hope that this prophecy can be realized first in China, and I also hope that Hunan University, which is renowned for civil engineering and construction, can spearhead this revolution.
The article was first published on China.org.cn on Nov. 15, 2023 and reprinted by other news websites.