A City of Firsts Returns to the Spotlight

It was supposed to be this legendary city’s proudest moment, a chance to showcase itself as the most dazzling metropolis in Communist China and the fastest-growing economic center in Asia.

No other city in the region promises as much growth in the face of global economic meltdown. No other Asian city could point to a more uplifting urban-renewal effort. And no other city, in all likelihood, would elevate an economic summit to an Olympics-scale event.

The city may not be the focus of world leaders, including President Bush, as they meet here this weekend for the 21-member Asia-Pacific Economic Cooperation forum. The gathering will be the first high-profile international conference since the Sept. 11 attacks on the United States, and a new anti-terrorism agenda is expected to upstage economic issues.

But that’s unlikely to obscure China’s rising global status as the APEC member best weathering the current economic storms. And Shanghai is its flagship, a miracle in the making, a city being transformed from economic backwater to regional powerhouse.

Now, perhaps, its vitality will turn heads. Blessed with relative physical and psychological distance from the doom and gloom engulfing much of the world today, Shanghai is, in some ways, reminiscent of what America historically has been--economically robust, optimistic and seemingly untouchable.

International business leaders describe this port city as one of the few safe havens for growth and prosperity.

City Sheltered From Global Forces

How Shanghai emerged as a symbol of hope in these uncertain times stems from China’s century-long struggle over opening up to the outside world. It also underscores the city’s determination to transcend its Communist roots, to define and profit from China’s version of capitalism.

“The rest of the world is going down, but Shanghai is supported by a Chinese economy that is still pretty much immune to global competitive forces,” said Sam Crispin, a consultant with international property company FPD Savills.

Despite a slowdown after the Sept. 11 attacks, Shanghai’s economy is expected to grow slightly more than 10% a year over the next five years. That tops even Beijing’s optimistic prediction, announced this week, that the national economy will expand at least 7% annually over the same period.

Domestic consumption remains the cornerstone of the local economy, and state mandate still works like a magic wand. Just look at the tremendous government-orchestrated building boom across the city. It’s as if terror and war were planets away.

In a part of the city called Xintiandi--”New Heaven and Earth”--developers just finished restoring dilapidated colonial row houses and recasting the area as a consumer’s paradise. Chairman Mao might roll over in his grave, but cash registers are ringing.

Next to the new yuppie landmark is the founding site of the Chinese Communist Party. With the municipal government’s consent, these sacred grounds have been converted into trendy restaurants and pubs, complete with a French cabaret, a Japanese music house and a Planet Hollywood-style eatery whose investors include Hong Kong movie stars such as Jackie Chan.

Xintiandi is only the first phase of a mega-project that is replacing rundown traditional homes with hotels, apartment blocks, office buildings and a man-made lake.

“It’s any developer’s dream,” said Vincent Lo, head of Hong Kong-based Shui On Property Ltd.

“Capital will no longer flow to the U.S. because the U.S. is no longer safe,” he argued. “This is the only place on Earth that can say it’s still growing.”

Even before Sept. 11, Shanghai’s real estate market was so hot that it felt like a postwar building boom. And there was plenty of room for development: After nearly four decades of neglect, the city desperately needed a face lift.

Once known as the Paris of the East, Shanghai has a decadent past as a colonial enclave and commercial hub, and it had the most to lose after the Communist takeover of the country in 1949. Almost as punishment, the city was relegated to the political outback. The savviest entrepreneurs fled; many attempted to recapture Shanghai’s glory days in Hong Kong, then a British colony. What remained was a skeletal manufacturing and industrial base, a bastion of central planning that fed the national coffers and received little in return.

Nothing better illustrates the city’s rise and fall than its architecture. Until the early 1990s, Shanghai had been trapped in a time warp. Its once magnificent cityscape had not seen a fresh coat of paint since Mao Tse-tung’s peasant army marched onto its splendid Nanjing Road, China’s Fifth Avenue. Residents subsequently endured some of the worst urban living conditions in the country. Infrastructure, from roads to plumbing, dated to the Industrial Age.

When market reforms were launched in China during the 1980s, the central government left out Shanghai. Attention instead went to special economic zones that prospered in the southern province of Guangdong, next to Hong Kong.

A twist of fate came when the 1989 Tiananmen Square massacre left China in an international deep freeze. Beijing needed fresh ideas to attract foreign investment and invigorate the economy. Paramount leader Deng Xiaoping anointed Shanghai as the new “dragon’s head,” reviving its status as the country’s financial and commercial center.

“Beijing took too much from Shanghai to feed the rest of the country. Deng Xiaoping wanted to give something back,” said Lu Deming, an economist at Fudan University.

Almost overnight, the Shanghai government was free to enact flexible economic policies. A building boom ensued. Just as they had done at the turn of the century, foreigners were among the first to reshape Shanghai’s skyline. “Beijing has been rebuilding for some 50 years; Shanghai only started in the last 10 years,” said Crispin, the consultant.

Aspirations to Be the New Gateway to Asia

Leading the pack were developers from Hong Kong, which reverted to Chinese control in 1997. They came looking for opportunities, fearful that Hong Kong’s best days were behind it and confident that Shanghai was on its way to becoming the new gateway to Asia.

Walk down Huaihai Road, the popular downtown shopping area: Nearly all the modern office towers, department stores and residential blocks were built with money from Hong Kong. The former colony’s tycoons, from Li Ka-shing to Hong Kong Chief Executive Tung Chee-hwa, have plunked down their money here.

The government used the billions it earned from land leases to launch an infrastructure revolution. In the blink of an eye, the city saw the development of elevated highways, tunnels, bridges, subways, telecommunication lines, parks and lakes. A state-of-the-art opera house went up, as well as a museum, library, stadium and airport. Old neighborhoods tumbled, and apartment blocks shot up. Rice paddies were reincarnated as Wall Street. The speed was dizzying.

But there was a downside to the boom. The building frenzy initially created a glut. Expensive office towers and apartment buildings sat vacant or unfinished because of poor planning and the aftershocks of the 1997 Asian financial crisis. The government responded by reintroducing the once-disgraced landlord class. Now demand is so great that sometimes apartments are snatched up before they are built.

Overseas Chinese as well as foreigners now see Shanghai as the new land of opportunity and a place to settle down, especially since the city’s recent easing of restrictions on which properties noncitizens can buy.

“Both my wife and I think we want to make a long-term commitment to Shanghai,” said Walker J. Wallace, an American attorney with the Los Angeles-based O’Melveny & Myers law firm, which runs its China practice here. “Shanghai is light-years head of anywhere else in China. It’s really a world-class city.”

The Wallaces are buying a Spanish-style colonial home in the old French Concession, an area given to French control in the 19th century. “It’s marvelous,” he said. “The old house is probably the best way to settle in Shanghai. They are a unique expression of Shanghai’s history. And they are cheaper than buying a new house.”

In many ways, the city has come full circle. After the 19th century Opium Wars turned it into a treaty port for Western trade and residence, Shanghai was at the forefront of the nation’s modernization. By the 1930s, China’s busiest harbor had made this the world’s fifth-largest city. Its urbanites embraced all the trappings of the modern world, leaving far behind an immense inland empire that remained deeply traditional and agrarian.

As a haven for expatriates and fresh ideas, Shanghai became the city of firsts for China: the first automobile, neon lights, electric trams, telephones, running water, high-heeled shoes, coffee shops, motion pictures, movie stars--the list goes on.

Even today, Shanghai boasts a constellation of superlatives: China’s biggest city at 13 million people, with its highest personal incomes, tallest building, the most banks, biggest stock exchange, largest foreign investment.

“Who could have imagined Japan would become the second-largest economy in such a short time? So many people missed the boat then. They’re saying they won’t miss the boat again,” said Sydney Chang, a former president of the American Chamber of Commerce here.

However, critics warn that the hype of Shanghai, like the myth of the China market, is more about potential than reality. Even its biggest fans admit that the government, rather than business, is driving growth. Much of the improvement is skin-deep.

During high-profile events such as the APEC gathering, the city takes draconian measures to look good. Traffic is eliminated by mandatory holidays. Neighborhoods are bulldozed and tenants evicted. Unsightly buildings that might come into the view of a foreign VIP are repainted--but only the walls that are directly exposed, leaving some dignified old homes looking like they’ve received half a haircut.

APEC preparations cost the city $36 million. Shanghai is also building a $2.5-billion deep-water port because the current one is too shallow. There is already a deep-water facility in Ningbo, about 100 miles to the south. But Shanghai insists that it should be the home of the country’s biggest port.

“It doesn’t make economic sense,” said William Z. H. Wong, the Port of Los Angeles representative here. “It’s about making Shanghai first.”