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as a response for growing domestic need for a business hub in/near Shanghai. Its recent incorporation as a logistic, innovation and commercial centre seems comparably successful to that in Pudong.
Policy advantages of non-central areas contributed to their growth of importance – like in the case of Xuhui’s manufacturing – however their value-added production to the economy is rather questionable. Persistently strong presence of peripherial manufacturing in an advanced economic structure (such as global cities) may be subject to further concerns related to its development and competitiveness.
Consideration of non-market elements such as the obstruction of service sector’s takeover in – otherwise preferred districts – will spoil the chance of a real transition towards a more advanced state of the economy.
At this point the expansion of urban space has been problematic as well, – in some districts the available land for (re-)development has shrunk considerably and raises concerns about future growth in a local context. FDI’s apperance and its relationship with suburban zones shows similar correspondence; there is no clear sign of proper utilization of land. On the other hand as it was stated by Wei and Leung, the example of Hongqiao or a few other districts makes outer metropolitan projects justifiable (Wei & Leung, 2005).
From global city related point of view, Shanghai has gone through a dynamic change.
Within a short period of time, the city has begun to build its international connections via its strong export capacities. Foreign firms (MNCs) had a major part in that achievement, while the role of indigeneous companies had been constantly growing.
Thanks to the significant amount of FDI inflow, (with supportive local government) Shanghai could facilitate and strenghten her service (primarily its banking) sector.
The city’s initial role as the host of multiple banks or banking services was a kickstarter of other sectoral expansions within the service industry. The transition was completed by the mid-2010s, where a second wave of expansion (driven by consumption) upset the overall share of services within the economy, decreasing industrial share below 33 percent.
Comparative advantages of the city
In recent years Shanghai has appeared on the maps indicating the most important hubs for business and services (including its stock exchange). If we exclude Tokyo and Osaka from the enumeration, there are five other major cities which now dominate the
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Asia-Pacific: Beijing, Seoul, Hong-Kong, Singapore and Shanghai. These five cities have reached high level of standards and are only slightly behind (if they are behind) of their Western/Japanese counterparts. They usually serve as gateways to their home economies, (except Singapore) therefore all of them are potentially important for investment. Seoul, Hong Kong and Singapore were the first three to enjoy the benefits of globalization, then they were slowly followed by Beijing and Shanghai after their gradual steps towards liberalization. At this point success was unquestionable: a high percentage of FDI flowed into the more advanced industries and began to contribute to a stable growth in many sectors, helping the city in its catch-up process to become a world-class economy like its global city rivals. The two regions in China (excluding Hong Kong) enjoyed exceptional support, especially in the establishment of knowledge-related industries. By now, despite the very high metro population, a significant percentage of jobs belong to business and financial service industries that give backbone to the cities’ rich.
Fundaments of Shanghai’s good performance on global level comes from its good quality of education (second best after Beijing).18 Moreover its efforts in establishing a strong basis for R&D within its science parks. The city was also able to attract some MNC branches, although most of these companies rather chose to operate in/from Beijing.
Figure 1: The map of Shanghai without Chongqing
18 p. 126 (Breznitz & Murphee, 2011)
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Source: Urban Shanghai; China Highlights
Implications of city development plans
According to the recent publication ’Shanghai Development Strategy’ (SDS) there are five expected functions that Shanghai should fulfill as a global city (Wang, Shibusawa, Leman, & Mao, 2013). Firstly it should serve as a global financial centre. Secondly, to become a global trade and logistics centre. Thirdly to be the centre of innovation-based manufacturing. Fourthly and fifthly to achieve the goal of a “creative” and
“well-functioning” metropolis. (The fourth and fifth pillars are the mixtures of generally measured global city attributes and miscallenous elements that may directly or indirectly contribute to the economy.)
The metropolitan area of Shanghai is seen as the leader of YRD region which is inevitably connected to the Chinese economy. Its financial centre is considered the second most competitive within China. 19 Shanghai also has a geographically advantageous location as the head of the dragon. Furthermore, existing fundaments enable the city to secure its position against domestic rivals (Tianjin, Shenzen or others). Last, but not least its market-capitalization and trading volume has already exceeded all other cities in East-Asia, except Tokyo, however as for now, it remains bound by the policies of central government.
19 Hong Kong is not taken into account since it has its own (convertible) currency, while Beijing is the centre of financial supervision.
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Leadership achieved high percentage of SDS mentioned goals in infrastructure expansion, both in air and sea logistics. The first step in that process was the relocation of the main airport from Hongqiao to Pudong area. Although it was completed by 1999, frequent upgrades and the establishment of airport services are still ongoing.
The rest of the major projects were mainly commenced between 2000-2010 and aimed to exploit the relative advantages that Shanghai has. Targets of these investments were the port development (with an enhanced container handling capacity) and highway-system construction around the city.
Local strategy was double-edged; it served directly the interests of Shanghai to become the leader in the region, while it simultaneously supported its economic hinterland by providing access to the world market. Thus beginning from the millennia, ties were strenghtened by other provinces in manufacturing and production.
Cooperation with YRD proved to be successful. By early 2010s the city together with its neighbours became the number one exporter of domestic goods within China, while it could also gain an international recognition. Concentration of logistical activities contributed to the growth of other industries such as ship-building, and increased foreign presence (Chubarov & Brooker, 2013). As a result YRD’s share in Chinese export increased to 25 percent from which foreign companies’ share topped around 33 percent in total (Wang, Shibusawa, Leman, & Mao, 2013).
Shanghai’s ’advanced’ manufacturing consists of: microelectronics, automotive, chemical industry, iron and steel, modern equipment manufacturing and ship building.
It covers a broad array, including some traditional industries, which are otherwise unusual in a service dominated economic structure.20 It is even more controversial, if one considers that the city is expected to undergo a rapid, 13 percent industrial downgrade by 2020 (Wang, Shibusawa, Leman, & Mao, 2013). Challenges are ahead – establishment of a diverse (advanced) service based economy seems comparably difficult to manufacture related innovation. As suggested above some of the industries
20 According to the latest [28th December 2016] market evaluation on HKTDC Research site, the composition of Shanghai’s industrial output was listed as follows:
- Computer, communications and other electronic equipment | 17%
- Automotive manufacturing | 16,8%
- General equipment | 8%
- Raw chemical material and chemical products | 7,9%
- Electrical machinery equipment | 6,9%
[Source: (HKTDC Research, 2016)]
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will eventually be overtaken by service elements. Somewhat surprising that latest charts indicate that service sector has already completed its 2020 goal by standing at 67,8 percent as of December 2015. Industrial output hasn’t been shrinking considerably, changes are rather caused by the greater overall expansion of service sector (Ran, Tertiary sector growth gives the right impetus for Shanghai's economic future, 2016).
A main financial centre of an opening economy
Financial sector within Chinese economy reflects on both the advantages and constraints of the current system. This complicated relationship (among domestic/foreign entrepreneurs and their operation with limited rights) requires further explaination. Finance related advanced services are considered as one of the most important pillars and/or major contributors to the tertiary industries with their fifteen percent share from local GDP (in the case of Shanghai and Beijing).
As it seems, central government in Beijing prefers to split the banking headquater and main stock exchanges roles between the capital and Shanghai (and to some extent with Shenzen or several other second tier cities).
Meanwhile, Hong Kong’s gateway role is also important in many ways in this division. Firstly for the entire Chinese economy Hong Kong has a mediator role, while the joint cooperation with Shanghai’s and Shenzen’s Stock Exchanges help these two domestic cities to establish connections with foreign businesses and investors. At the same time Hong Kong’s expertise in financial services may serve as an example of a successfully operated stock exchange with all the related knowledge.
Being barely influenced by the 2007/08 crisis, the growth rate of finance-related industries soared in China. For instance Beijing with its nine percent year-on-year growth surpassed the national average and approached the level of more mature global cities (Csomós & Derudder, Ranking Asia-Pacific cities: Economic performance of multinational corporations and the regional urban hierarchy, 2014).
Shanghai most likely didn’t fall back either and could achieve similar or an even higher growth. Such a significant expansion entails a shift in global command and control ability as well. According to the comparisons of 2006 and 2011, Beijing managed to surpass Tokyo in its “financial command and control ability”, while Shanghai Stock Exchange (SSE) became number two in the volume of trades.
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(Csomós & Derudder, Ranking Asia-Pacific cities: Economic performance of multinational corporations and the regional urban hierarchy, 2014) (Desjardins, 2016).
Based on the tendencies Chinese financial centres [Shanghai, Beijing and Shenzen21] are expected to grow further to become leaders within Asia-Pacific region. On the other hand recent uncertainities about banking system (mainly the high-level of non-performing loans) can disrupt this growth and force financial sector into correction.
As for now, the expansion goes on, while skepticism remains present either about the GDP figures or the structural problems. Nonetheless no major problems have emerged so far.