Inside SHANGHAI FINANCIAL TIMES SPECIAL REPORT | Thursday April 30 2009 Geoff Dyer explains where the real power lies Page 3 www.ft.com/shanghai2009 Visions of grandeur put to the test Next year, the city Olympics: yet another chance for to mention making this already China to impress the world (not western-friendly city easier to hosts the world’s to mention its own citizens) with navigate by foreigners, by teach- biggestever expo. But its achievements in science, tech- ing more taxi drivers to speak nology and culture. English and discouraging foreign its ambitions go well This vast city of 17m people pet peeves such as spitting in beyond this, writes has been turned into a building public and queue-barging. Shang- site to prepare for the event: sev- hai plans to add 20,000 hotel Patti Waldmeir eral new subway lines are being rooms by the end of next year – a T hose who are weary of added to give the city a 400km 34 per cent inflation in the sup- the woes of capitalism underground railway network, ply of starred hotel rooms – at a should come to Shanghai one of the longest in the world. A time when occupancy rates at in the spring. In the busi- new terminal has been built for five-star hotels have already been ness capital of the world’s most cruise ships, airports are being savaged by the global financial populous economy, visions of renovated, thousands of the crisis. greatness are in the air, spring- city’s often foul public toilets are But long-term ambitions go ing up right next to the tulips, being cleaned up and Expo is well beyond Expo: last month the overpriced boutiques and the even tackling the local cuisine: Beijing decreed that the city skyscrapers. Expo food will minimise offal, should become an international Shanghai’s consumers are and ban chicken bones, all in aid financial centre by 2020. That spending like there is no finan- of impressing picky foreigners. may sound like just a lot of Bei- cial crisis, buying swanky cars Expo will make permanent jing bravado; but as the west has and even swankier handbags, improvements to the physical begun to learn, when China’s eating in restaurants and doing infrastructure of Shanghai – not leaders decree that something all those fun things westerners will happen – there is at least a dimly remember from the easy chance that it might. credit age. The city’s policymak- Certainly, the international cri- ers are laying plans for a future sis has done nothing to shake that includes building ever taller Inside this issue Shanghai’s determination to office towers and more opulent modernise its financial system, hotel rooms, until it takes over with the aim of overtaking Hong the world of Asian finance by Kong, Singapore and even Tokyo. 2020 as one of the world’s pre- Outsiders, suffering their own mier financial centres. crisis of confidence in capitalism, Shanghai plans to spearhead might think China is similarly China’s transformation from disillusioned, but not so: “The sweatshop to service economy, impact of the crisis is much less attracting not just multinational than outsiders believe,” says Pro- corporations that want to make a fessor Wang Jianmao of the quick buck off 1.3bn Chinese con- The legal system Judges are China Europe International Busi- sumers – but innovators eager to better trained and foreign ness School (Ceibs). “In China, leverage the wisdom and work investors sometimes win cases we have our own agenda, we are ethic of a new generation of Chi- against Chinese companies, very unlikely to speed up or slow nese engineers to staff their R&D writes Michael Skapinker down because of something that centres. Page 2 happened outside the country.” From tourism, to investment, “The financial crisis has not Finance Shanghai wants to innovation, Shanghai has knocked China off track,” says to be another Hong Kong oversized ambitions. Are the city Fang Xinghai, head of Shanghai’s or Singapore by 2020. leaders dreaming? Patti Waldmeir considers Financial Services Office and an Their visions of grandeur will its chances Page 2 important architect of Shanghai’s face their first big test next year market modernisation pro- when the city hosts the biggest Politics The city’s leverage on gramme. “We have had 30 years world Expo in history – an event national politics is not what it of unprecedented growth due to to rival the great 19th century was but its influence has not markets, how could we just world’s fairs in London, Paris disappeared, writes Geoff Dyer throw that over because the US and Chicago, famed for introduc- Page 3 is having some problems?” ing the world to the Crystal Pal- So the goal is still the same: for ace, the Eiffel Tower and the Fer- 1933 cultural centre the past decade, Shanghai has ris Wheel. An old abattoir is being aimed to open up and modernise The Shanghai Expo expects transformed into a meeting its financial markets, which 70m visitors, 5 per cent of them place for creative folk from overseas, and has drawn Page 4 Up, up and away: construction workers on the site of 2010 Expo, an event set to rival the 19th century fairs in London, Paris and Chicago Getty parallels with last year’s Beijing Continued on Page 3 2 ★ FINANCIAL TIMES THURSDAY APRIL 30 2009 Shanghai The importance of friends LEGAL SERVICES improvements. Judges are property cases, says: “An cessfully took action when it a problem in Shanghai in better trained. Foreign inves- objective observation of the saw shoes on sale in a terms of a contract,” he The system works tors sometimes win cases IP situation in Shanghai and Shanghai department store says. “Shanghai is the most better than it did against Chinese companies that have copied their prod- China is that it has pro- gressed.” She points to sev- that had Gucci’s familiar double-G interlock pattern. legalistic city in the country. Small towns [in China] are but connections ucts, although damages are eral cases. In one, Diageo, the The similar-looking shoes the wild west. In Shanghai, still matter, says not huge. Many investors and diplo- UK drinks company, found in 2006 that the packaging and were made by Senda, a Chi- nese company. they follow the rules.” But he too says that con- Michael Skapinker mats say that more of this decoration on Polonius Senda defended its shoes nections are important. “In progress is vital if Shanghai whisky was substantially in the District People’s Court China, if you’ve got to the is to have any chance of similar to that on its Johnnie in Shanghai’s Pudong dis- point where you have a legal W hen he first meeting its goal of becoming Walker Black Label whisky. trict, saying its brand was case, you’ve failed. You have began studying an international financial Diageo filed complaints well-known in China and, as to rely on relationships.” Chinese law, centre by 2020. against the Blueblood its shoes were sold from a Many lawyers and inves- Peter Corne Mr Corne says that cases (Shanghai) Wine Company, a Senda-franchised counter in tors in Shanghai agree that concluded that lawyers in between private companies the department store, there at some point you will need China, both domestic and in China are, today, usually was no danger of customers government friends too. “In expatriate, “were perpetrat- settled fairly. “If you’re deal- ‘In Chinese history, confusing them with Gucci’s Chinese history, legal issues ing a kind of illusion”. Mr ing with another private legal issues are products. The court held are not as significant as Corne, an Australian-trained party, you have a reasonable that there was a danger cus- political connections,” Ms lawyer who today heads the expectation of getting a deci- not as significant tomers might believe Sun says. It is a point Mr Shanghai office of Ever- sheds, the UK firm, says: sion that could be based on an impartial judgment of the as political Senda’s shoes had a connec- tion with Gucci and ordered Corne emphasises too. “I started practising here in “Western lawyers, like me, problem.” Cases against the connections’ the Chinese company to pay 1995 and have seen a lot of and Chinese lawyers who government or state-owned Rmb180,000 in damages. improvements. The culture had been to the States and companies are far harder, he Mr Corne of Eversheds has evolved to be more come back were trying to says. dealer and wholesaler of says the relatively small accepting of legal ways of promote a system of law Lawyers say the largest Polonius whisky. The Chi- awards in Chinese cases are doing things.” He adds: “I based on western training.” foreign investors are nese authorities fined Blue- because courts limit them- find my work a lot more China still does not have a unlikely to experience the blood in 2006 and in 2007 but selves to the direct damages meaningful but I temper my legal system that matches worst problems. Catherine the company continued to the aggrieved party suffers. expectations on behalf of my those of most western coun- Sun, head of the Shanghai sell Polonius whisky. Courts will look at the prof- clients. I know when I can’t tries. While many foreign office of Foley & Lardner, a Diageo took the case to the its the plaintiff company rely on the law any more lawyers have offices in US firm, says the authorities Shanghai No 2 Intermediate might have made, but will and beyond that I need to China, they cannot officially will ensure that companies People’s Court, demanding not award punitive damages. hobnob.” practise law in the country that have invested large Rmb2m in compensation. Paul Liu, who is develop- Is that different from any- and have to act through sums are generally well The court found for Diageo ing and managing 1933, a where else? “To an extent local firms. cared for. It is harder for and ordered Blueblood to new Shanghai creative cen- you have to have connections But Mr Corne and other smaller companies. pay the UK company tre, agrees that parts of the in any country to get things lawyers based in Shanghai All the same, Ms Sun, who Rmb1.25m in damages. legal system now work rea- done. Here you have to work say there have been specialises in intellectual In another case, Gucci suc- sonably well. “I’ve never had a lot harder,” he says. Seal of approval: many foreign lawyers have offices in China but they can’t practise Bloomberg Market is closed, opaque, undeveloped but ambitious FINANCE financial markets remain on a limited basis – ironi- a financial futures exchange lot of bullets successfully have our own agenda, and it and Singapore (which has trusted to treat foreign and closed, opaque, and underde- cally, at exactly the moment nearly three years ago, but it and that is why there is a is very unlikely to speed up long been plotting a coup of domestic litigants equally, is Patti Waldmeir on veloped. From this primitive that many western has yet to trade a product. very long gestation period,” or slow down because of its own), not to mention a big obstacle, he says. Shanghai’s chances base, can Shanghai possibly transform itself into a global exchanges were halting or restricting short selling. But Officials say they expect trading to begin later this for reforms, says Peter Alex- ander, of Shanghai-based something happening out- side the country.” New York and London. Convertibility of the cur- Shanghai officials admit there is also a serious talent of becoming financial centre by 2020, as since then nothing has hap- year – but then, the immi- investment consultants “The messages are very rency is a gargantuan bar- gap between the demand a global centre Beijing has decreed? It is hard to find any finan- pened. It is a common pat- tern: Beijing announces that nent launch of Shanghai stock index futures trading Z-Ben Advisors. Fang Xinghai, head of the consistent and have been for five years,” says Richard rier. Officials say the goal is to make the renminbi “more and supply of experienced financial professionals. cial professional in Shanghai it is ready to introduce one has been predicted before, Shanghai Financial Services Yorke, CEO of HSBC in convertible” – but they The government of The Shanghai stock market who is willing to bet on it. financial innovation or and failed to materialise. Office, argues that caution China. “And since China is admit that there is little Pudong, the heart of finan- has been, for most of this “You can’t even short the another – and then nothing Of course, officials can be has paid off: “China has likely to recover from this appetite for such a goal in cial Shanghai, is building year, the best-performing market,” says one exasper- happens. forgiven for thinking that been very good at control- slowdown quicker than any government circles, where low-cost serviced apartments stock market in the world. ated analyst for a foreign Financial futures are the what once was condemned ling risks when it comes to officials are still congratulat- to try to attract financial But foreigners have very lit- investment bank. Beijing clearest example of an inno- as an excessively timorous innovating in the financial ing themselves over having professionals, and the city is tle access to it, and local announced late last year vation that, though much pace of reform has since services sector because China needs more avoided the pitfalls of too working hard to recruit investors have very little that it would introduce short trumpeted, so far has not begun to sound sagely cau- every innovation has to go robust corporate much financial openness. overseas, to take advantage alternative to it: China’s selling and margin trading happened: Shanghai created tious: “China has dodged a through a process of regula- The legal system is also a of the rout in the US. tory deliberations and governance big barrier. Experts say a But China’s punitive 45 approvals, often involving several regulators.” He does and far more rudimentary legal system may be adequate for the per cent income tax, and deficiencies in its healthcare not need to point out that transparency early stages of economic and education, may make it western financial officials development, but a sophisti- difficult to recruit experi- can claim no such success. cated financial services enced professionals. So have the tribulations of other major economy….the industry requires a much Intangible challenges will recent months delayed the importance of both China more transparent, predicta- be even harder to surmount. opening and modernisation and Shanghai as a financial ble and fair system. “Being a China needs a more robust of China’s financial market centre will probably be global financial centre system of corporate govern- even more? Officials and increased.” means your neighbour puts ance and far more transpar- analysts delicately point out But whatever comparative money in your pocket. At ency. that it is arrogant to suggest advantage China may reap the moment, the confidence The deadline of becoming so: “In China, we have plans from the global crisis, no one is not there for that,” says a global financial centre by [as in, five-year plans],” says underestimates the scale of one Chinese analyst for a 2020 may seem distant now: Wang Jianmao of China the challenge of turning foreign investment house. but it is a short one for all Europe International Busi- Shanghai into a financial An unpredictable legal sys- that the city must accom- ness School (CEIBS). “We centre to rival Hong Kong tem, which cannot be plish beforehand. Tough task of turning recruits into innovators RESEARCH & DEVELOPMENT some of them have got to be are not used to packaging cessful enough for export smart,” he says. their thoughts in a way that markets too, and has been Michael Skapinker Many foreign companies you can sell them within a sold in the rest of Asia and on the trouble feel the same way. There are estimated to be more than company like GE”, Mr Chen says. Latin America. Theresa Kotanchek, an with limits on 200 research and develop- It is a complaint voiced in American who heads the indepedent thought ment facilities in the Shang- hai region. Most arrive with other R&D facilities in Shanghai: the education sys- technology effort in China of Dow Chemical of the US, a fairly simple mission: to tem does not encourage reports some successes too. It is a typical 3M story: an customise existing products independent thought. Nor Dow’s newly-completed employee comes up with an for the Chinese market. But does it prepare students for Shanghai R&D facility is a idea that, through a series of some have moved on to the teamwork that R&D vast complex, complete with accidents, then turns into a more serious R&D work – requires. employee gym. product. While trying to inventing new products for How do research compa- The Dow centre was develop a new kind of rub- the Chinese, and occasion- nies in Shanghai deal with designed to look beyond ber for aircraft fuel lines, ally world, markets. this? At GE, they give staff China from the start. It is someone at 3M once spilt Attracting R&D to Shang- mentors to teach them how the company’s R&D hub for some of the latex on a shoe hai is a central part of the to develop research propos- the entire Asia-Pacific and discovered it was water city’s ambition to turn itself als. At first, those mentors region. It is one of only four resistant. The company into a world-class services such hubs. Two of the others turned it into Scotchgard. centre. There have been are in the US and one is in A churchgoing employee notable successes. Several Attracting R&D Switzerland. of 3M, the diversified tech- large R&D facilities in is a central part of “Multiple factors drove us nology company, watching Shanghai are staffed almost here,” Ms Kotanchek says. the bookmarks falling out of entirely by Chinese nation- the city’s ambition One was access to talent: his hymn book, secured them with a glue the com- als. General Electric has 2,000 research workers in to turn itself into Dow was finding it increas- ingly difficult to recruit Chi- pany had developed that did China, 1,400 of them at its a worldclass nese researchers to work in not lose its stickiness. The facility in the Zhangjiang the US because of the tight- result was Post-it notes. technology park in Shang- services centre ening of visa restrictions Here is another 3M story: hai’s Pudong district. Of the that followed the September some employees developed a 2,000, only 10 are expatriates. had to be in the US. Now 11 attacks of 2001. Education product that kept road signs Exclude Chinese-Americans that some of the Chinese in China has improved, Ms clean. It worked, but wore and the figure drops to two staff have experience of GE Kotanchek says, and the off in a few days. Unde- or three. and its ways the company result was “the top talent terred, they pondered who But turning technically has moved on to local men- was staying in China”. might need to keep some- competent recruits into inno- tors. It is not that Ms thing clean for a shorter vators has not been easy. Is it working? Are there Kotanchek does not recog- time before reapplying it – Xiangli Chen, president of other local innovations to nise the problems that many and decided to use the prod- GE’s China Technology Cen- add to 3M’s miners’ masks Chinese recruits have with uct in miners’ masks. tre, says the US company product? GE in China has innovation. It is just that her The difference with that has no difficulty recruiting. developed a low-energy med- company looks for both high last 3M story is that it took “We take the cream at the ical scanner. The scanner technical skills and an inno- place in China – a country top. We really don’t have was developed for the Chi- vative outlook when it famous for its low-cost man- much trouble getting the nese market. Fewer people recruits. Like GE, Dow says ufacturing but not, in its best.” Many are skilled. are obese in China than in it can aim for the best recent history anyway, for About two-thirds have mas- the west and the scanner researchers. It receives 3,500 its inventiveness. ters or doctoral degrees. But tunnel that patients pass applications for every 100 Kenneth Yu, managing they still have difficulty through could consequently positions. Those who suc- director of 3M in China, does putting their ideas forward. be smaller. The scanner also ceed still need training in not buy the idea that Chi- What they lack is “the soft had to be robust enough to innovation. nese employees cannot inno- skills, especially in an Amer- endure high usage levels. But Ms Kotanchek insists vate. “With 1.3bn people, ican corporate culture. They The scanner has been suc- these efforts are paying off. FINANCIAL TIMES THURSDAY APRIL 30 2009 ★ 3 Shanghai Gang’s political inf luence takes a hammering POLITICS Beijing mayor Chen Xitong was Mr Chen already had a reputa- within elite Chinese politics since tics. It also reflected a broader industry.” His detenion, there- direct challenges to Mr Hu’s jailed in 1995. tion for corruption, which meant Hu Jintao succeeded Mr Jiang in effort to reduce the power of fore, helped Mr Wen assert influence and the CYL group The former local party Ever since he was first that some of the allegations 2002. President Hu’s political regional barons within the party greater control. now has more influence, he still boss may have been detained by Communist party officials in 2006, Mr Chen’s down- against him came as no surprise. However, few analysts believe base within the party is the Com- munist Youth League (CYL) and and to assert greater control over economic policy. Looking at this power struggle from Shanghai, both interpreta- has to work within the limits of the party’s different factions, jailed but the city still fall has prompted intense specu- that graft was the main reason he has been positioning to place Since at least 2004, Mr Hu and tions look to be bad news for the including the Shanghai gang. has allies at the top, lation about whether it signalled the marginalisation of the city in for his ouster. One explanation is that it was allies in important positions, often at the expense of Mr Premier Wen Jiabao have been battling to try to prevent the Chi- city – either its leaders have been personally marginalised or its The downfall of Mr Chen has not given him a free hand. For writes Geoff Dyer national politics and the end of the culmination of a factional Jiang’s erstwhile allies. The nese economy from overheating voice in economic decisions has instance, he appears to have been the so-called “Shanghai gang”. fight that had been taking place detention of Mr Chen came as and that involved picking fights weakened. unable to install ally Li Keqiang The Shanghai gang took root the party was readying itself for with important regions such as However, analysts caution that as his likely successor. In April last year, Chen Liangyu, in 1989 when Jiang Zemin, the the 17th Congress in October 2007 Shanghai, which did not want while Shanghai does not have Finally, Shanghai still has the former party boss in Shang- then party boss in the city, was when a lot of personnel changes Beijing to slow the pace of expan- the same leverage in national plenty of allies in the top leader- hai, was sentenced to 18 years in elevated to general-secretary of were made. sion. Mr Chen reportedly had politics that it once enjoyed, the ship. In addition to a series of prison for his role in the biggest the Communist party in the “Since dumping former Shang- strong arguments with Mr Wen city’s political influence has not officials in financial circles, Wu corruption scandal in China in aftermath of the Tiananmen mas- hai party secretary Chen over the direction of economic disappeared. Most observers Bangguo, the number two figure more than a decade. sacre. By the mid-1990s, Prime Liangyu in late 2006, President policy in 2004. believe that Mr Hu would not in the party hierarchy, spent The court heard a long list of Minister Zhu Rongji and a host of Hu has tightened his control over “No one challenged Hu and have moved against as senior a much of his career as an official misdeeds that Mr Chen was other senior leaders were former the east China metropolis as well Wen more vehemently, more fre- figure as Mr Chen without squar- in Shanghai, while the likely alleged to have committed. He Shanghai officials and the city as the so-called Shanghai fac- quently, or more directly than ing it with other senior figures in next president of China, Xi Jin- had personally taken bribes of received pride of place in the cen- tion,” says Willy Lam, the vet- Chen Liangyu,” says Cheng Li, a the Shanghai gang, especially Mr ping, was briefly the party boss more than Rmb2.39m and had tral government’s economic eran China-watcher. One result Chinese politics expert at the Jiang and then vice president in Shanghai. Although the allowed the Shanghai city public plans – symbolised by the con- of the detention of Mr Chen was Brookings Institution. Zeng Qinghong. The fact that a emphasis on government policy pension fund to have more than struction boom in Pudong. Even “the resolution of the longstand- “Using statistics to illustrate national campaign was launched has shifted to boosting inland Rmb3bn in assets siphoned off when Mr Jiang stepped down ing slugfest between the two his points, Mr Chen had report- to publicise Mr Jiang’s memoirs regions and to expanding the for illegal use. from his party posts in 2002, major party cliques”, he says. edly argued that the Hu-Wen shortly before the detention gave social safety network, Shanghai’s As the party secretary in there were still plenty of mem- However, many analysts administration’s macroeconomic the perception that some sort of development as a financial, trade Shanghai, Mr Chen was the most bers of the gang in senior posi- believe that Mr Hu’s drive to clip control policies would hamper deal had been reached between and services centre remains an senior Chinese leader to be tions, such as Huang Ju, then the wings of the Shanghai gang the country’s economic growth, the two sides. important priority that overrides accused of graft since the then vice premier. Chen Liangyu: 18year jail term was more than just factional poli- especially its booming real estate Even though there are no factional rivalries. A city’s appearance can be deceptive SHANGHAI V BEIJING can be very seductive. On Those looking to build a Chi- is Beijing that is home to the the Bund, Shanghai’s old nese retail business, such as country’s most vibrant art Geoff Dyer on why colonial waterfront, there is HSBC and Citigroup, are in scene – even if the financial you should not be a place called the Glamour Bar whose ceiling-high win- Shanghai. But the list of investment and commercial crisis has knocked the stuff- ing out of the exorbitant seduced by a dows look on to the Pudong banks with their base in Bei- prices artists were able to gleaming skyline skyline. On two separate occasions, complete stran- jing is equally impressive, from Morgan Stanley to JP charge. Beijing is also home to China’s most interesting gers on their first visit to Morgan to UBS. While music scene, dominated by a S hanghai likes to Shanghai have approached Shanghai offers closeness to sort of grunge rock with a think of itself as New this correspondent to ask for the market and a deeper refreshing degree of irrever- York to Beijing’s advice on how to get a job in base of middle-management ence. Washington DC. Bei- the city. Something about expertise, Beijing offers eas- Some of Beijing’s cultural jing is the buttoned-down, the view made them want to ier access to clients and deci- pulling power comes from its bureaucratic centre of gov- change their lives. sion-makers. For better or position as the capital. As a ernment, so Shanghaiese tell Yet despite the powerful for worse, Goldman Sachs result of its status, the main themselves, while Shanghai hold that Shanghai exerts on has come to symbolise New media organisations are in is the financial, fashion and some imaginations, Beijing York finance, but the bank Beijing and so are a large cultural hub, as well as the cannot be dismissed as just a has its China base in Bei- number of the intellectuals nation’s arbiter of taste. government town. Indeed, jing. and non-government groups Pudong view: Shanghai likes to think of itself as New York to buttoneddown, bureaucratic Beijing’s Washington Getty Foreigners arriving in Beijing’s attractions, talents Shanghai is also making a that want to try to influence China for the first time often and influence are much big push to attract research policy. The political system come away with the very deeper that first meets the and development activities and level of censorship are same view. With the gleam- eye. to the city and it has had no different between the two ing skyscrapers in Pudong Whether it is business or considerable success. In the cities, but the elite-level con- and its conveyor belt of new culture, Shanghai often versation about the future of restaurants from all over the plays second fiddle to Bei- the country is much deeper world, Shanghai has an air jing. Take finance. Shang- Beijing’s in Beijing. of easy cosmopolitanism hai’s aim to become China’s attractions, talents The quirks of Communist that makes Beijing seem the financial capital is often spo- party control also sometimes provincial city. ken of as a struggle for dom- and influence help Beijing. To get the nec- Those first impressions inance with Hong Kong to see which market will are much deeper essary approval for an artis- tic project in Shanghai, the Contributors emerge as the main venue than first meets only route is to go through for financing Chinese compa- the city’s culture bureau. Patti Waldmeir nies. the eye But in Beijing, there are Shanghai Correspondent Hong Kong’s market has competing centres of power prospered over the past dec- pharmaceuticals sector at local and central govern- Michael Skapinker ade by lisiting Chinese com- alone, Roche, Novartis and ment level that savvy artists Editor, Special Reports panies that wanted access to GlaxoSmithKline have all can sometimes play off Geoff Dyer a deeper and more stable established laboratories in against each other to obtain Beijing Bureau Chief market, a trend that Shang- Shanghai. the necessary stamps. hai was starting to reverse But, again, Shanghai faces Yet for all that, Shanghai Stephanie Gray before the global financial stiff competition from Bei- is in lots of ways a more Commissioning Editor crisis. jing. The capital has the liveable city. For more than But the real financial capi- country’s two most famous a decade, it has had a vigor- Steven Bird tal is Beijing. Commercial universities – Beijing Uni- ous conservation movement. Designer banks account for about 80 versity and Tsinghua – and And while large swathes of Andy Mears per cent of all financing in the city has used such the city’s traditional areas Picture Editor China and the main banks resources to attract substan- have been knocked down, are all based in Beijing. tial R&D investments. the conservationists have For advertising details, Moreover, not only does Bei- China’s contribution to the forced it to think a lot more contact: jing host the offices of the human genome project was about the value of retaining Olivia Hu on: financial regulators, it is run out of Beijing, while older neighbourhoods and +8621 63759222: also home to most of the multinationals which have trying to restore the build- firstname.lastname@example.org country’s biggest companies. chosen the city as their ings rather than raze them or your usual The state in its many forms research hubs include Micro- in favour of more endless representative still plays an emormous role soft and IBM. high-rises. in the Chinese economy For all Shanghai’s glam- It is a lesson that Beijing, More reports can be found which puts Beijing is at the our and glitz, Beijing also which has just been through online at: centre of business affairs. offers a broader cultural life. a whirlwind of construction www.ft.com/reports Beijing’s dominance in Abstract art has become one and modernisation in prepa- finance is reflected in the of the main cultural signa- ration for the Olympics, decisions of foreign banks. tures of modern China and it could take more notice of. Visions of grandeur put to the test Continued from Page 1 especially compared with its political weight behind ent thinking; a health sys- their western counterparts. the plan. “But the king does tem that provides world today offer a relatively prim- They foresaw the emergence not crown himself,” says quality medical care; a more itive choice to domestic of a property bubble and Jerry Lou, China strategist robust system of corporate investors (largely limited to pricked it just in time; and at Morgan Stanley in Shang- governance; a transparent equities or real estate), and they shied away from the hai. Daunting challenges lie political system; and ulti- very restrictive access for introduction of margin trad- ahead: China’s currency is mately, freedom of informa- foreigners. ing in time to avoid a fur- not convertible; its legal sys- tion. But Shanghai govern- But progress has been ther dangerous inflation in tem, though improving, is ment officials argue that a excruciatingly slow. An the Shanghai stock market, still at best unreliable if not system of transparent laws exchange was established in which would have further downright unfair to foreign- and information freedom 2006 to trade stock index devastated the savings of ers; there is a vast “talent was not enough to save the futures, but the first product millions of Chinese pension- gap” between the demand US from financial meltdown has yet to be introduced; and ers who have seen the mar- and supply of qualified and – and may not be necessary though market regulators ket halve since its 2007 peak. experienced financial profes- for Shanghai to achieve its announced several months Prof Wang says China is sionals; and the punitive 45 goal of Asia market domi- ago that short selling and fed up with great leaps for- per cent income tax rate nance either. margin trading would be ward: “Groping forward” is a scarcely encourages those “Shanghai has done many introduced on a trial basis, wiser strategy, he says, “that made redundant on Wall things I never thought they nothing has happened. way we won’t so easily make Street to set up shop in could do,” says Kenneth Yu, The global financial crisis a big mistake”. Lujiazui. managing director of 3M in has, if anything, encouraged All that groping leads to a Those are just the more China. “When I first came this ultra-cautious pace of pace of change that is pain- tangible hurdles. Some long- here in the 1980s, if you had modernisation. “What was fully slow. “But it never goes term China analysts think said this city would be what previously regarded as backward,” says Peter Alex- Shanghai has no hope of it is today, I would not have overly prudent is now ander, of Shanghai-based becoming a world-class believed you.” In China, regarded as a sign of investment analysts Z-Ben financial centre until it can some things happen very strength,” says Richard Advisors. boast not just the trappings quickly and some happen Yorke, CEO of HSBC in So Shanghai is on track to of a more open and modern very slowly. No one knows China. Chinese officials are become a global financial market, but those of a more whether the transformation congratulating themselves centre – eventually. The city open political economy: an of Shanghai in the next dec- that they have dodged a has long had this ambition, education system that fos- ade will play out in fast or number of financial bullets – and now Beijing has thrown ters creativity and independ- slow motion. 4 ★ FINANCIAL TIMES THURSDAY APRIL 30 2009 Shanghai Lessons on creating a friendly business environment The most significant ingredient Kong as a textile powerhouse in unbiased and minimally Yu’s assessment. Yi Qian of The aiml of the city is to treatment of businesses, and Guest Column in the making of a successful the 1960s and 1970s. Other Hong interventionist. Northwestern University and I vault itself into a high-tech state then moving to improve its YASHENG HUANG capital market is a vibrant Kong entrepreneurs Contrast Hong Kong with have performed statistical overnight, but this is built on regulatory quality, curb entrepreneurial base. After all, a subsequently branched into Shanghai. Probably the most analysis on a large database of the erroneous notion that large corruption and increase capital market exists to serve newer industries, such as penetrating indictment of Chinese companies and we show companies are sources of transparency. The Chinese government the needs of entrepreneurs, not machinery, electronics and Shanghai’s treatment of local that the indigenous private technology and innovation. It will be a huge blow to recently announced a decision the other way around. professional services. entrepreneurs came from Yu sector in Shanghai lagged Large companies are risk-averse Shanghai, to Hong Kong and to turn Shanghai into an It is here that Shanghai has a That indigenous Hong Kong Zhensheng, its party secretary. behind not just the most and it is the vibrancy of smaller indeed to China itself, if it international financial centre by lot to learn from Hong Kong. entrepreneurs were able to In October 2007, Mr Yu said: entrepreneurial provinces such groups that keeps the large repeats its past mistake of 2020 to rival the likes of New Long before the territory prosper between 1950 and 1997 is “Since last June, more than as Zhejiang and Guangdong but companies on their mettle – propping up the Shanghai stock York, London and Hong Kong. became known as a world class particularly significant, because 7,000 private enterprises have the national average across sometimes by destroying the exchange by restricting the Similarly ambitious goals, set financial centre, it was an Hong Kong was ruled by its moved out of Shanghai. Many of almost all measures of most lethargic and sometimes listing options of Chinese forth a decade ago, have incubator of entrepreneurship – British colonial masters. In 1950, these Zhejiang entrepreneurs entrepreneurship and business by forcing large companies to entrepreneurs. Restricting remained largely unfulfilled but, especially that of the the huge British merchant moved their headquarters to development. acquire smaller ones as a way competition with the Hong Kong this time round, there is a home-grown, local variety. houses, such as Jardines, Hangzhou and Hong Kong. We Shanghai’s indigenous private of upgrading their technology. stock exchange, as the city did greater realism attached to the Take Li Ka-shing, the world’s dominated the commercial and need to change policy.” companies tend to grow more For Shanghai to have any when it restricted domestic city’s aspirations. Officials most successful Chinese industrial landscape. Mr Yu made this comment slowly, generate smaller realistic prospects of catching entrepreneurship’s ability to acknowledge the huge gap entrepreneur. Mr Li, born into a By the early 1970s, local after he learned that Ma Yun, revenues and hold fewer up with Hong Kong, it needs to compete with foreigners, will between the capital market in humble family of teachers, entrepreneurs more than one of China’s most dynamic patents. figure out how to enable the only thwart Shanghai’s lofty Shanghai and that of Hong started his business making and matched their colonial entrepreneurs, had first started The root of the problem is a likes of Li Ka-shing. aspirations. Kong. In particular, they have selling plastic flowers. He was counterparts and, by the late his business in Shanghai but system that is highly biased in To foster entrepreneurship, identified the need to recruit by no means alone. The group 1980s, surpassed them by a large left for the neighbouring favour of certain companies and Shanghai needs to go back to Yasheng Huang is a professor at competent professionals. of industrialists who left margin. This is the moral of the Zhejiang province because of the discriminates against others. It the basics of reducing MIT Sloan School of Shanghai trails Hong Kong in Shanghai in 1949 were story: Hong Kong entrepreneurs latter’s friendlier business woos multinational corporations government intervention, Management and author of financial talent, but arguably single-handedly responsible for thrived under a British system environment. while shunning domestic, small- removing bias in its licensing, Capitalism with Chinese this is the least important gap. the miracle growth of Hong because that system was fair, Systematic data support Mr and medium-sized businesses. financing and regulatory Characteristics (2008). Slaughterhouse gets a new life 1933 CULTURAL CENTRE toir that is rapidly filling is more than ready for that.” with restaurants, recording Born in Brazil to Chinese Michael Skapinker studios, photographic busi- parents, Mr Liu grew up in on making a place nesses and bookshops. 1933, named for the year in Ann Arbor, Michigan, and worked as an investment for people with which it was completed, is banker in New York and a creative bent an intriguing, slightly forbid- ding structure, with a con- Hong Kong. He was chief financial officer of Three on crete lattice façade. The inte- the Bund, a revamped shop- I n western cities, new rior is filled with uneven ping and restaurant centre Cool cultural quarter: the 1933 building is filled with uneven spaces and ascending ramps along which cattle were once herded to their deaths cultural quarters usu- spaces and ascending ramps that also hosts the Shanghai ally develop because along which cattle were once Gallery of Art. the world. The others were ally the home of artists and Hongkou is a gritty place staff are putting the final around a glass recording stu- rents are low enough herded to their death. The Bund, Shanghai’s his- in London and New York. writers, Hongkou provided now. Electric wiring hangs paint dabs on an alarmingly dio. American Apparel, the for artists to move in. Or, in Paul Liu, chief executive toric riverside boulevard, is Designed, with an art deco refuge to tens of thousands from a power cable above realistic-looking broad- US clothing retailer, is open the case of London’s South of Axons Concepts, has been filled with imposing banks touch, by British architects of European Jews during the the street near Mr Blumen- trunked tree. The studio for business. Bank, because a determined asked to give effect to and designer shops. 1933 is a and built by Yu Hong Ji, a second world war. At a time thal’s one-time home. The offers wedding photographs. This is what Mr Liu is Shakespeare enthusiast, Sam Shanghai’s vision of a new world away, as Mr Liu Chinese construction com- when most doors were old synagogue has been Elsewhere, there is a read- looking for – a mixture of Wanamaker, decided to build cultural centre. “A lot of observed when he first saw pany using concrete closed to them, Shanghai beautifully restored as a ing area, with books on offices, retail and exhibition a replica of the Globe Thea- areas of Shanghai are about it, empty, on a cold winter’s imported from the UK, the demanded neither visa nor museum, but the surround- angled shelves. At the top of space for those of a creative tre there and the Tate Mod- consumption,” he says over day. building typified the interna- passport. When the Japanese ing streets are shabby. The the building is a vast, light- bent. He is pretty clear ern art gallery followed. lunch at the Jade Garden The old abattoir was once tional flavour of Hongkou, occupied Shanghai, they area is ripe for refurbish- filled exhibition space, with about the tenants he is not In China, cultural quarters restaurant, a 1933 eatery. a marvel. Designed to pro- the Shanghai district in forced the Jews into a ment and 1933 is meant to be a circular glass stage, which looking for. He does not develop because the authori- “But a lot of Shanghai’s pop- vide Shanghai with meat which 1933 is located. ghetto, but resisted German part of that. The building has already hosted car want logistics companies or ties decide they should. At ulation are intellectual, cul- whose provenance it could “This is part of old Shang- demands to deport them to has played many parts. launches. accounting firms. “We have least, that is the theory tured. We want to become trust, it was one of the three hai. Pre-1949 colonial Shang- concentration camps. From 1959 until 1970, it was Over in an old warehouse, rejected 50 per cent of the behind 1933, a one-time abat- their destination. Shanghai biggest slaughter houses in hai,” Mr Liu says. Tradition- After the war, almost all a cold storage facility. Then, now glass-enclosed, next to people who wanted to come the refugees left. One, until 2002, it was a medi- 1933, workers are drilling here.” Michael Blumenthal, became cines factory. No one ever around staff from Profero, a What other tenants and US Treasury Secretary envisaged it being a cultural London-based marketing events does he want? under President Jimmy centre. It still feels cold and agency, who are setting up “Design firms, graphic art- Carter. Mr Blumenthal’s slightly bleak. shop. People from a com- ists, cultural events, lec- home is marked by a plaque Some of the building’s pany called Factory stand tures,” he says. “We have to on the low building where occupants have just moved amid what will be a complex get the critical mass to make his family once lived. in. In a photographic studio, of eating and drinking places this a destination.” Another comingofage party for Brand China EXPO AND TOURISM to go in terms of profession- Patti Waldmeir on Paradise for bargain hunters alism,” she says. From a tourism point of ambitions to score When it comes to price, Shanghai has a split cheerful tailors of the SoftSpinning Material view, the immediate priority is Expo, which starts on May another triumph personality. Food is far Market to keep to their side 1 next year. Expo organisers cheaper than London (small of the bargain and make are worried that too many surprise there); but the sure that the buttons will top-end hotels are being Sometimes China seems to city’s luxury good stores not fall off the next day. built and not enough budget have cornered the market are every bit as costly as Truth be told, Shanghai’s rooms for the thrifty domes- for superlatives: the biggest, anywhere else, and certainly best tourist attraction is its tic tourists. They are looking the fastest, the cheapest, the much dearer than Hong buildings. Even the most into training local citizens to best – whether the subject is Kong. Lettuce is dirt cheap, mundane suburban offer bed and breakfast economic growth or Olympic but lattes are astronomical. apartment block often accommodation – but there pageantry. Now the country So the best advice is: do sports an extravagant roof is no tradition of such home is planning the biggest ever not go shopping alone, take ornament, from the stays in Shanghai. world’s fair – the Shanghai a personal shopper. neoclassical to the Making Expo succeed is World Expo, which will run Shanghai is one of the ultrafuturistic, illuminated obviously as important a pri- for six months next year, safest cities on earth for after dark. And the city’s ority for the Shanghai gov- and is expected to attract tourists.. But the best deals three tallest buildings – the ernment as the Olympics 70m visitors, 3.5m of them are not on Nanjing West 101storey Shanghai World were last year for Beijing. foreigners. Road or Huai Hai Central Financial Centre, the But one big national partici- Beijing’s goal is to score Road, the main brand 88storey Jin Mao Tower pant is going down to the another triumph for brand thoroughfares. and the fuchsiatinted wire on whether or not it China: yet another giant Shanghai’s competitive Oriental Pearl Tower, all will be there: the US has coming-of-age party, like last advantage is imitation, so offer splendid views over failed to raise the $60m year’s Beijing Olympics. take along a longloved suit this vast, dirty and chaotic needed to build and operate Shanghai wants to take its or overcoat, a dress or metropolis. its pavilion because govern- place in the history books, blouse and have it copied But visitors need to take ment funding is prohibited alongside the world’s great- at the South Bund away, not just a memory of by law and corporate donors est world’s fairs: London’s SoftSpinning Material a startling view, but that are being squeezed by the Great Exhibition in 1851, at Market – preferably in a blouse or cashmere financial crisis. the Crystal Palace; the 1889 luxurious silk or cashmere. overcoat. In Shanghai, the “There is a lot of face at Universal Exposition in Any hotelier can direct a pace of change is stake here for everyone,” Paris, which produced the tourist to the famous frightening. Blink and the says Brenda Foster, presi- Eiffel Tower; and Chicago’s “fabric market” on Lu Jia neighbourhood’s favourite dent of the American Cham- 1893 Colombian Exposition, Bang road. But once past restaurant will disappear. ber of Commerce in Shang- which introduced the first the building’s handful of Grab that silk blouse hai. Ellen Eliasoph, co-chair- Ferris Wheel. beggars, all the stalls look while there are still bargains man of the US expo organis- This Expo, whose theme is much the same A good to be had. ing committee, says “Better City, Better Life”, personal shopper will corporate donors are emerg- will boast national, corpo- browbeat the cheap and Patti Waldmeir ing to support the pavilion rate and other pavilions, and ground will be broken some with walls made of within 90 days (with or with- soyabean fibre, air condition- empty for years afterward? 50 per cent this year. “What out all the money). ing systems run with river Expo officials say they will happen in 2010 is any- “This is the most spectacu- water and lights powered by expect the city to add 20,000 one’s guess,” he says, noting lar site, in the most dynamic solar panels. The aim is to starred hotel rooms by the that at least seven luxury city, in the most dynamic give 70m ordinary people a end of the next year, an hotels are due to open in the region in the world,” she glimpse into a cleaner, increase of more than a city in the next 12 to 18 says. “This is China, and healthier, more sustainable third. But Andreas Flaig, months. “We’re going to be every country and every urban future. managing director China of in for a pretty rough ride company wants to be there The event will doubtless Jones Lang LaSalle Hotels, when it comes to occu- to show itself off to its best boost the Shanghai economy says the upper end of the pancy,” he says. The flip advantage.” in the short term, and the hotel market is already side, though, is that the city Shanghai is hoping that national prestige – not least under serious pressure – and will have a “breadth, quan- the hyperbole will get the among the domestic tourists. not just because of the inter- tity and quality of hotels” to Shanghai Expo into the his- But expectations for Expo, national financial crisis; it surpass Hong Kong, he says. tory books. Another chance especially within Shanghai, has been in oversupply for But Connie Cheng, vice for China to prove its prow- are extremely high: will several years already. chair of the Shanghai Munic- ess: Shanghai (with Beijing it have a more lasting leg- Shanghai’s five-star hotel ipal Tourism Administra- firmly behind it) will do eve- acy? Or will it merely inflate occupancy rates fell 9 per- tion, is not underestimating rything it can to avoid miss- an asset bubble of luxury centage points last year, to the obstacles. ing that priceless opportu- hotels that will remain 59 per cent, and could fall to “We still have a long way nity.
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