The Shanghainese might just be brash enough to bring this vision to life. Within four years they have built China’s top financial markets, nourished a computer industry from scratch and begun work on the roads and airports that will make their city a modern trade hub. Foreign investors are arriving to open offices, including nearly 200 U.S. firms in the last 18 months. Now the financial world is tantalized by the idea that chaotic Shanghai may indeed replace comfortable Hong Kong as the main entryway into the China market. City officials are eager to feed the idea that Hong Kong will become China’s back stoop – even after the British colony rejoins the mainland in 1997. Shanghai and its 13 million residents, says Wu Ya Lun, vice president of its stock market, will become “the dragon head of China.”
Judge a Chinese city’s prospects by its chaos. As Shanghai forges ahead building subways and elevated highways, a morass of 400,000 vehicles (twice as many as three years ago) perpetually clogs its narrow streets. In prime areas officials are pulling down colonial neighborhoods and putting up more profitable high-rises with abandon. Meanwhile, foreign companies, which have plowed more than $14 billion into the city since 1992 (five times more than during all of the 1980s), pay extravagant rents for cramped offices and apartments rising out of the exhaust fumes.
Still, many are betting on the city’s rich history as a commercial center. Shanghai achieved greatness as a port ruled by foreigners – the British, French and Americans who were granted settlement rights in the sleepy outpost after China’s defeat in the 1842 Opium War. The Chinese settlers who subsequently flowed into Shanghai developed a style of their own – people of the Middle Kingdom who could better understand the ways of the barbarians of the West. When Mao’s Communists took the city in 1949, the foreigners were ousted and Shanghai was put under the yoke. For nearly 40 years it languished as an isolated industrial center forced to remit virtually all of its income to the central government. Then, in 1990, concerned that a decade of rapid growth in the economically liberated south was leaving the rest of the country behind, Beijing allowed the city to form its own Special Economic Zones. That allowed it to prosper again, and the Shanghainese granted themselves a historical mandate to once more become China’s cosmopolitan “center of it all.”
Shanghai brings real credentials to its campaign. The city’s “Wall Street,” the imposing colonial bank buildings and trading houses along the river-front Bund, is still intact. As an industrial center, the city also has a wealth of schools, offering overseas companies one of China’s strongest concentrations of educated workers (at salaries much lower than Hong Kong’s). Beijing has also encouraged China’s computer firms to locate in Shanghai, which has helped attract business from overseas. Shanghai “is becoming the software center for China,” says John Burgoyne of IBM China Co., Ltd., which recently moved its Chinese-language software firm from Hong Kong.
More than anything else, Shanghai hopes to become a corporate town like Manhattan, full of large firms like Big Blue. As one Western diplomat says: “They are very into the Fortune 500.” Send your low-end factories anywhere in China, city officials say, but put your headquarters and high-tech production in Shanghai. These officials reckon that companies such as AT&T will train Chinese workers to world standards. And while Shanghai isn’t known for generous incentives to foreign investors, its strategy to attract big-league firms seems to have paid off. So far more than 300 U.S. companies have set up offices in Shanghai. In the past two years U.S. firms have poured around $1.5 billion into the city. “If you’re going to do business in China, you have to be in China,” says Diane Long, head of Shanghai’s American Chamber of Commerce, “and Hong Kong isn’t China.”
But Shanghai’s courtship with the West isn’t all flowers and love letters. Despite taking handouts from foreigners – Shanghai gladly accepts loans from the World Bank and countries doing business with the city – officials have refused to let foreign investors take control of development projects. Its planners have rejected the model of southern China, for example, where Hong Kong developer Gordon Wu is building a superhighway in return for the right to develop shopping malls and other ventures along the route. Instead, foreign businessmen complain that the Shanghai government earns much of its money by gouging them with exorbitant land prices that may drive investors away. “That the Shanghainese were shrewd and capable businessmen in the 1940s does not guarantee their success,” says American lawyer Norman Givant.
That’s not the only problem with the cheery tale Shanghai officials peddle. There’s the island they want to conquer. With its first-rate services, British laws and comfortable lifestyle, Hong Kong is still the headquarters town of choice. Shanghai hopes to wire up one in four residents with telephone service by the end of 1995, for example; Hong Kong has been fully wired for years. While Shanghai claims economic dominion over the Yangtze River, Peter Woo, chairman of Hong Kong’s Wheelock and Company Ltd., defines the territory’s zone of influence as a 10-province region more populous than Western Europe. Shanghai and other cities may come to challenge Hong Kong, says a study by Hong Kong’s business federation, “but not on a scale that would strongly affect Hong Kong.” Finally, Hong Kong has a thriving middle class, but Shanghai is just beginning to come to terms with the social consequences of personal wealth. The city has millions of peasants roaming the streets. And there are fears that the poor won’t cotton to the folks who lay out $50,000 for golf-club memberships.
All the same, Shanghai’s sheer confidence may be its greatest hope. Sitting in the city’s securities exchange, where stock values have dropped by more than 30 percent in this year’s bear market, an executive can talk of becoming “equal with New York and London.” As seen from Shanghai, the emperor lives far away in Beijing, Hong Kong lies on the southern periphery, and all of China beckons from the banks of the Yangtze. Come to China, barbarians one and all. Come to the New York of China.
