Shanghai, a few years ago...

Found on my hard disk: old musings about a favorite city of mine... Had just spent a month there, at my daughter's and her boyfriend's (now husband) place. Laurence was completing a full academic year of mandarin training at Jiaotong university. Here it goes:

Reconnecting with Shanghai - Impressions of a Visit.


A view from the Bund…

As we were waiting for our dinner table at Jean Georges, one of the most fashionable restaurants amongst the numerous trendy eateries that now grace this city, sipping drinks on the terrace atop Three on the Bund, the newly restored post-renaissance establishment, we had an incredible view of Shanghai, old and new, past and future.

On our left, the Bund, vestige of pre-revolutionary times when wild capitalism prevailed in this foreign enclave, traces a soft arc of light marrying the large curve that shapes the Huangpu River at this point, with all its turn-of-the-century (the one before last!) Greco-roman structures. From what was the massive headquarters of the Shanghai and Hong-Kong Bank to the old British-built (and operated) Customs House and the Cathay Hotel (known as the Peace hotel since 1949), all gleams in the night like part of a gigantic “Son & Lumière”. The sounds come from the six-lane boulevard that borders it and the thousands of people milling along the extended promenade that gives directly on the river, a very popular evening rendez-vous place for city-dwellers and visitors alike. Wisely, the city has preserved its famous waterfront, and its classical buildings are one by one being restored to house modern offices or swanky shops and restaurants.

And directly in front of us, across the river, the future of Shanghai, Pudong! A wall of huge neon signs and electronic billboards fronting clusters of post-modern skyscrapers, amidst which stand the Disneyland-like, double-bubble Oriental Pearl TV tower that has come to symbolize the skyline of the new city, and the decisively more elegant and stylish Jin Mao building, in my view, one of the most striking and inspiring modern structure in Asia today. This is the new nerve center of the city; Lujiazui, its new financial district, Century Park, flanked by the new Science and Technology Museum and the yet-to-be-open Opera Hall; Pudong Airport and the MagLev – the world first magnetic levitation train that covers the 50 km taking you to the airport in less than 8 minutes; and the Hi-Tech parks, sites of leading edge foreign and local ventures. Decidedly futuristic in its architecture – actually a favorite set for sci-fi Hollywood film productions lately (for film buffs, see the latest, “Code 46” with Tim Robbins, for breathtaking shots of modern Shanghai…)


Shanghai the laggard?

A far cry from the time I first set eyes on Shanghai in 1979 and lived here in the mid 80’s! Then, in the early days of the new modernization thrust that Deng Xiaoping had brought upon China, Shanghai was suspected of lagging behind the rest of the country in its drive and conviction towards building the new, open-to-the-world China. I remember the then mayor being chastised by the leadership in Beijing and invited to go south to Guangzhou and Shenzhen for inspiration! He was soon after replaced. They were wrong though; the spirit was there, but the money wasn’t. Shanghai was still considered the milk cow of China and most of the wealth it generated was siphoned off (revengefully?) by Beijing. Once the fiscal pie was more fairly split – thanks to mayors like Jiang Zemin and Zhu Rongji – Shanghai started its vertiginous ascension to become the very embodiment of China’s unabated quest for world leadership in this new century!

Where is this city going? Can it keep the pace at which it has developed so far? Can it be more vibrant than it is now? Or is it all glitter, hiding some fatal flaw that would eventually sap its foundations?


All eyes on 2010 World Expo

The city’s economy grew by 10% last year, in keeping pretty well with the pace experienced over the last decade or so. It absorbs 1 out of every 10 dollars invested by foreigners in China - $6Billion in 2003. There is no shortage of projects and growth prospects to sustain the view that Shanghai is far from being close to economic saturation. Much of the excitement currently is focused on the World Expo that will be held here in 2010 – the clock erected to mark the countdown to its opening was featured recently in the press to remind everyone. This is for Shanghai what the 2008 Olympics are to Beijing. Much is anticipated from this event and the infrastructure planners of the city are busying themselves with what needs to be accomplished before then. The city has its own road show going around the world enticing exhibitors and business with the promise of sizeable contracts to build and hold the exhibition – they started their tour with Singapore, six months or so ago. Former mayor Xu Kuangdi, now acting in some consultative capacity, heralded a couple of weeks ago the extension of the MagLev, in time for Expo 2010, another 170 Kilometers from Pudong Airport to nearby Hangzhou, a city of some 6 million people, shortening the trip from 2 hours and a half to less than half an hour at a top speed of 430Km/h!


From bikes to cars…fast!

The MagLev though won’t solve all of Shanghai’s growing transportation problems (the traffic gets so heavy at peak hours that access to an elevated freeway leading to a tunnel across to Pudong is forbidden between 8 and 9:30am!) The exponential growth that car ownership has experienced over the last 5 years now poses for Shanghai’s authorities a policy dilemma not dissimilar to what California would have been faced with 30-40 years: do we build more infrastructure to accommodate the growing traffic, thus compounding the problem by making it more inviting for people to own a car? (Anyone who drove recently at peak hours between San Francisco and Silicon Valley on the 101 would understand). The answer is in public transportation and several more subway lines are on the drawing board (the subway incidentally is the most reliable means of getting around in Shanghai if you want to make your meetings on schedule – it’s user-friendly even for non-Chinese speakers as stations are announced in English too, but be prepared to be “squeezed” a little at rush hour!).

Cars of course are the new consumer’s obsession and the automobile the focus of new industrial growth. Practically all major global manufacturers have JV’s here, going back to the early 80’s when Volkswagen set foot in Shanghai. The city spent more than US$300M to build its own Formula 1 circuit in the suburbs – the best in the world, in the words of Michael Schumacher who I think won the first Grand Prix run on the circuit last September. That was not built without a plan and the idea is to create a whole new industrial zone centered on the auto industry, called the “auto-city”.


Build and they’ll come!

Real estate is the subject of much speculation (no pun intended) amongst observers of the economic scene in Shanghai as to whether the pace at which it is developing is sustainable or not. A startling figure was put to me by the manager of one of the world’s leading real estate management firm based here: in square-footage there were more newly-built real estate transacted in Shanghai alone last year than in the whole of the United States put together! Whether you choose to believe this or not, you cannot escape the enduring visual impression created by the sight of hundreds of construction sites everywhere around the city.

The Japanese Mori Group just announced that it is re-starting construction of the Shanghai World Financial Center which was put on hold back at the time of the Asian financial crisis in 1997-8, this time to be built by Chinese prime contractors. This will be the next tallest building in the world, sitting in between the Jin Mao and the TV Tower in Pudong, with its some 100 floors and a defining 50-meter diameter hole carved out of the top of the building!

Residential real estate prices have doubled over the last 5 years - not for the high-end sector though favored by foreign residents, which has remained pretty flat during that same period. Foreign ownership is not a driving factor we are told, accounting only for about 4% of the local real estate stock. Real estate in Shanghai is very much a local game! Is this bubble about to burst? Is this a bubble to start with? Experts would argue that it isn’t and that what we are witnessing now is the beginning of a long-term upward trend. While cyclical movements are to be expected as in any other real estate market, they don’t see any approaching collapse of the market. Their arguments appear solid. As Shanghai continues to grow its 15 million inhabitants are getting more affluent and more people are coming in from around the country settling in the city; and this is not about to stop. Asking about the impact of the recent hike in interest rates – the first in nine years – I was reminded that the Chinese have a different view than most Westerners when it come to credit: 66% of the property value on average is paid up front!

{An interesting anecdote: old pre-revolution European houses are very much sought after, to be renovated and sold or rented to foreign residents or companies. Recently the former residence of Victor Sassoon – the celebrated owner of the Cathay hotel – came on the market with a record asking price of US$15M. It’s a wonderful Tudor-style 9000 sq ft villa set on several acres of undulating lawns and gardens on the outskirts (at least then) of Shanghai. It’s a place I know well which I used in my days in Shanghai as Canada’s Consul General for receptions back in the 80’s and which I had recommended the Canadian Government to consider buying as an Official Residence – probably a good deal was passed over…}


Telecoms – the real story…

The city is also the sight of fast growing competition in the telecom service business. At the time the old China Telecom, which had a grip on the fixed-line market, was broken up in 2002, Shanghai, along with some 20 southern provinces, ended up within the territory of the new China Telecom. China Netcom however, its competitor from the North, has been rapidly spreading out its own infrastructure here to capitalize on the growth of the city. Little heralded Symphony Telecommunications – a “pilot project” where foreign ownership in basic telecommunications services was allowed for the first time a few years back ahead of WTO (AT%T owns 15%) - is quietly doing well out of its base in Pudong, selling corporate services and international connectivity to Chinese banks and multinationals such as COSCO, China’s merchant marine group based here.

As of this month, ownership in basic facility-based services will be open to foreigners in China’s 3 main cities as per WTO’s implementation schedule. However as much as participation in Chinese mobile markets was sought after by foreign operators in the 90’s – and perhaps because it ended in such a fiasco with the State Council eventually reneging on the gray-area deals that were made at the time – there is apparently no stampede at the gate so far for foreign operators to come in and invest in telecom services. It may well be that current Chinese operators have raised enough money through their IPOs on foreign markets – some US$25 Billion so far – to finance their expansion and meet China’s growing demand without the need for foreign competition to come in…

The real story though is somewhere else. Shanghai is also the site of major manufacturing and R&D activity in telecoms. All large Chinese suppliers – Huawei, ZTE, Datang and Putian – have facilities here. Alcatel’s joint venture, Shanghai Bell, has its 5000-employee manufacturing plant in one of Pudong’s hi-tech export zones. Indeed, the real news about China’s telecoms is not WTO and foreign access to its service markets, but the rise of its manufacturers as global competitors. Their admitted goal is to conquer foreign markets and they are well under way. Companies like Huawei and ZTE have more than 20% of their sales abroad now, and not only in developing countries but also in places like Western Europe. They have R&D facilities outside of China, some in the US, and are opening subsidiaries around the world. In the words of an executive of one of the large foreign suppliers with a presence here, “we’d better hurry and join up somehow with them soon, otherwise it is they that will come after us, and on their own terms!” The day may not be very far when we will start hearing reports that Huawei or ZTE are bidding for parts or all of Nortel, Lucent or Motorola…the way Lenovo bought IBM’s PC business just recently.


Shanghai, a generation from now…

So where is Shanghai going? Comparisons are inevitable. “The ‘hardware’ is there, but not the ‘software’!” a businessman friend of mine in Singapore commented to me, comparing the city to Hong-Kong. And that is very true. The depth and breath of Hong-Kong’s financial world for instance far surpasses that of Shanghai. Generally the “savoir-faire”, the expert touch that you can experience in the service industry in the old British colony is not common currency yet in Shanghai. But for how long? I have seen the difference that one generation makes, from 1979 to today. Give it another generation and the comparison won’t even stand. Give it yet another generation and Shanghai will be on par with Tokyo. Shanghai stands at the prow of an enormous economic powerhouse, China, that is just starting to gain momentum.

Admittedly, I am a big fan of Shanghai - I have always been…

Shanghai, December 6, 2004