Shanghai Industries (Shanghai Series)

SHANGHAI

INDUSTRIES

Sponsored by The Information Office of the State Council, The People’s Republic of China

Supported by The Information Office of Shanghai Municipality Shanghai Series Editorial Committee General Consultant: Wang Zhongwei Editor-in-chief: Song Chao Deputy Editors-in-chief: Wang Jianjun and Hu Dawei

SHANGHAI

INDUSTRIES XU JIANGUO

(Shanghai Century Publishing Co., Ltd.)

Australia • Canada • Mexico • Singapore • Spain • United Kingdom • United States

SHANGHAI INDUSTRIES by Xu Jianguo Copyright © 2008 by Cengage Learning (a division of Cengage Learning Asia Pte Ltd). Cengage Learning™ is a trademark used herein under license. Original Chinese Edition © Shanghai Century Publishing Co., Ltd.

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Printed in Singapore 1 2 3 4 5 SLP 11 10 09 08 07 ISBN-13: 978-981-4195-54-6 ISBN-10: 981-4195-54-5

Contents

List of Figures

vii

List of Tables

ix

Foreword

xi

Chapter 1 1. 2. 3.

Overview of Industrial Development Industrial Restructuring Shift of Focus in Industrial Development

Chapter 2 1. 2. 3.

2. 3.

Development of Shanghai’s Modern Service Industry

Status Quo and Features Distribution of Shanghai’s Modern Service Industry

Chapter 4 1.

Development of Shanghai’s Advanced Manufacturing Industry

Status Quo and Features Distribution of Shanghai’s Advanced Manufacturing Industry Emerging Industries

Chapter 3 1. 2.

History of Industries in Shanghai

Shanghai’s Industry Policies and Associations

Guiding Policies for the Development of the Modern Service Industry Guiding Policies for the Development of the Advanced Manufacturing Industry Policies on Industrial Structure

1 2 14 36 43 43 68 76 81 81 97 101 103 112 117

Contents

vi

4. 5.

Policies Supporting the Development of Small- and Medium-sized Enterprises The Role of Industry Associations in Boosting Shanghai’s Industries

Chapter 5 Shanghai Industries and the Yangtze Delta Megalopolis 1. 2. 3. 4. 5.

Formation of the Yangtze Delta Megalopolis Industrial Division of Labor in the Yangtze Delta Megalopolis Industrial Planning in the Yangtze Delta Megalopolis The Radiation Function of Shanghai’s Industries Internationalization and the Competitiveness of Shanghai Industries

Chapter 6 1. 2. 3. 4. 5. Index

Development Prospects

Future Directions Open Industries Sustainable Industries Circular Economy Resource-efficient Economy

121 124 127 127 135 138 144 147 159 159 163 164 166 168 173

List of Figures

Figure 1.1

Shanghai’s industrial development (1978–1984)

22

Figure 1.2

Shanghai’s industrial development (1985–1990)

23

Figure 1.3

Positions of six pillar industries in Shanghai’s industry in 1999

24

Figure 1.4

Indices for Shanghai’s six pillar industries in 2004

25

Figure 1.5

Layout of Shanghai’s industrial zones and high-tech parks

27

Figure 1.6

Gross output value of Shanghai’s construction industry since opening-up and reform

32

Figure 1.7

The changing proportion of tertiary industry in 33 Shanghai’s GDP

Figure 1.8

The changing proportion of tertiary industry in 35 Shanghai’s GDP (1999–2005)

Figure 1.9

Shanghai’s industrial development (1991–1999)

38

Figure 1.10

The changing proportion of the value added of Shanghai’s tertiary industry in GDP during the 1990s

38

Figure 1.11

Shanghai’s manufacturing output value and growth rate (2001–2004)

41

Figure 2.1

Proportion of Shanghai’s automobile industry in gross industrial output value

45

Figure 2.2

Composition of Shanghai’s car production in 2005

47

viii

List of Figures

Figure 2.3

Growth margin of the industrial output of Shanghai’s electronic information product manufacturing industry and its percentage in the city’s total

55

Figure 2.4

Output of Shanghai’s petrochemical and fine chemical manufacturing industry during the Tenth Five-Year Plan period

61

Figure 2.5

Total profit of Shanghai’s petrochemical and fine chemical manufacturing industry during the Tenth Five-Year Plan period

61

Figure 2.6

Output and growth of Shanghai’s shipbuilding industry in the Tenth Five-Year Plan period

64

Figure 2.7

Composition of gross output value of Shanghai’s 64 shipbuilding industry in 2005

Figure 2.8

Distribution of Shanghai’s six advanced manufacturing industries

69

Figure 2.9

Gross industrial output value of biomedical industry and its contribution to Shanghai industry (2000–2005)

77

Figure 3.1

Proportion of tertiary industry in GNP (1996–2005)

81

Figure 3.2

Layout of commercial areas in urban Shanghai

99

Figure 5.1

Geographical scope of the Yangtze River Delta 129

Figure 5.2

Proportion and contribution of Shanghai, Jiangsu, and Zhejiang in China’s GDP

131

Figure 5.3

Distribution of core cities in the Yangtze Delta

133

Figure 5.4

Circular distribution of cities in the Yangtze Delta

134

List of Tables

Table 1.1

Gross output values and proportions of 19 Shanghai’s light and heavy industries (1957–1965)

Table 1.2

Shanghai’s industrial structure during the Cultural Revolution

20

Table 1.3

Proportions of Shanghai’s light and heavy industries during the Cultural Revolution

20

Table 1.4

Summary of output values of Shanghai’s six pillar 24 industries

Table 1.5

Comparison of Shanghai’s high-tech industries, 1999 vs. 2003

28

Table 1.6

Comparison of Shanghai’s metropolitan industry, 1998 vs. 2004

30

Table 1.7

Development of Shanghai’s tertiary industry in 2004

36

Table 1.8

Shanghai’s outputs by industries in the 1990s

37

Table 1.9

Structural changes of the main sectors in Shanghai’s tertiary industry

39

Table 2.1

Investment in the automobile manufacturing industry (2003–2005)

44

Table 2.2

Gross industrial output value and industrial product sales of Shanghai’s automobile industry in 2005

45

Table 2.3

Comparison of China’s main steel producing provinces or municipalities

48

x

List of Tables

Table 2.4 Investments in various sectors of Shanghai’s equipment manufacturing industry in 2005

52

Table 2.5 Shanghai’s shares of some major information products in China

56

Table 2.6 Overview of Shanghai’s electronic information product manufacturing industry in 2005

57

Table 2.7 Shanghai’s integrated circuit production during the Tenth Five-Year Plan period

58

Table 2.8

Summary of foreign-funded petrochemical and fine chemical enterprises in Shanghai during the Tenth Five-Year Plan period

60

Table 2.9

Main economic indicators of six provinces/ municipalities in 2005 for their petrochemical and fine chemical manufacturing industry

62

Table 3.1

Logistics centers planned or under construction in Shanghai

98

Table 5.1

Proportion of the Yangtze Delta region in China’s GDP (1978–June 2004)

131

Table 5.2

Distance-based circular structure of the Yangtze Delta Megalopolis

135

Foreword

Shanghai is China’s largest industrial and commercial city and also one of its economic centers. Its industrial development, urban expansion, and functional improvement are mutually promoting. The opening-up of Shanghai in 1843 as a commercial port marked the birth of its modern industry and commerce. In the 1860s, with the establishment of Jiang’nan Manufacturing Bureau, the scale of industries in Shanghai was continuously expanded, paving the way for the rise of its heavy industry. In the 1930s, quite a number of overseas Chinese students returned to China after completing their studies, and devoted themselves to the development of China’s national industry. They brought Western management concepts and technologies to China, fused Chinese and Western cultures, and built up a number of name brands. The highly developed commerce and trade in Shanghai at that time turned the city into the economic and trade center of the Far East. After the founding of the People’s Republic of China in 1949, Shanghai established a fairly complete industrial system and energetically boosted its heavy industry through self-reliance, making itself into China’s largest industrial city. After China initiated opening-up and reform in the late 1970s, Shanghai’s industries underwent drastic market-oriented adjustments in the 1980s. The commerce and trade sectors experienced rapid growth in this period. In the 1990s, the reform, opening-up, and development of Pudong ushered Shanghai’s industries into a new stage of strategic adjustment. Shanghai has since enjoyed a two-digit rate of economic growth for 16 straight years and its urban functions have been continuously improved. The city has provided support, in technology, human resources, and capital, to facilitate the shift of international industries to Shanghai. Undoubtedly, Shanghai’s rapid development will create tremendous opportunities of cooperation and development for investors from all over the world. This book or rather Shanghai Industries reviews the evolution of Shanghai’s industries since 1840, and elaborates systematically

xii

Foreword

on the status quo of industrial development in Shanghai. It aims to present a general picture of the major industries in Shanghai, covering their spatial distribution as well as their relationship with the Yangtze Delta Megalopolis. It also analyzes the crucial role of Shanghai’s industry policies in enhancing the competitiveness of its industries and propelling the city’s fast economic growth, as well as envisions the prospects of industrial development in Shanghai. Substantiated by a huge amount of detailed and accurate data, the book might be a useful reference to all who are interested in the development of Shanghai’s industries. This book is an embodiment of the work of many people. Thanks must go to Shen Guilong, Yu Lei, Zhang Laichun, Li Shuangjin, and Wang Guo from the Shanghai Academy of Social Sciences as well as Mr. Xia Yu and Dr. Li Qingjuan from the Shanghai Municipal Economic Commission for their considerable help. Last but not least, I would like to thank Ms. Xin Yanxiang of Shanghai Century Publishing Co., Ltd. and Mr. Yang Liping of Thomson Learning Asia for their editorial support, without which this book would not have been possible. All errors are mine. Xu Jianguo 2007

CHAPTER

1

History of Industries in Shanghai

O

n a map of China, trace your finger along the country’s great coastline until you reach its centre. There you will find the city of Shanghai. With its strategic position, at the estuary of the Yangtze River, known as China’s “Golden Watercourse,” and on the banks of the Huangpu River, which connects the interior and the coastal area, it is easy to see how this city is enjoying rapid development. As early as the reign of Emperors Qianlong (1736–1795) and Jiaqing (1795–1820) of the Qing dynasty, it was changing from a sleepy little fishing town into one of southeast China’s most renowned cities. It was even given the titles of “Gateway between the Yangtze River and the sea,” and the “Metropolis of Southeast China.” By the late 1940s, Shanghai had grown into China’s largest industrial, commercial, and economic center. Its position was significant not only in terms of industry and transportation, but also in terms of domestic and international trade, and finance. When the People’s Republic of China was founded in 1949, Shanghai changed its focus of economic development to domestic markets. After recovering from World War II, and entering a stage of planned development, Shanghai evolved into a large-scale comprehensive industrial base. This change was brought about by efforts to improve industry, continuous adjustments to industrial structure, a highly centralized planned economic system, and a selfreliance development strategy.

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After China had adopted its reform and opening-up policy, Shanghai’s economy was reborn and its industrial structure was continuously optimized. Primary and tertiary industries have been Shanghai’s mainstay, taking its economy from one level to the next. In the 21st century, giant leaps in industrial optimization have thrust the city into a new stage of strategic growth.

1. Overview of Industrial Development After the Opium War in 1840, Shanghai became one of the five open ports specified in the Nanjing Treaty. The city officially opened to international trade when George Balfour, the first British consul in Shanghai, issued the No. One Circular of the British Consulate on November 17, 1843. Shanghai rapidly adopted modern production technology and management systems from the West, and began to operate with an essentially capitalist mode of production. In the late 1930s, its foreign trade amounted to half of China’s total; Shanghai also contributed to more than half of China’s modern industry. Before 1949, Shanghai was not only China’s industrial center, but also the biggest trade and financial center in the Far East. In 1949, the ratio in terms of total output between Shanghai’s light and heavy industries was 86.4% versus 13.6%. Textiles and food were the main players for light industry, accounting for 68.8% and 17.5% respectively in total output.

1.1 First Stage (1949–1978) Shanghai was liberated on May 27, 1949. After the founding of the People’s Republic of China, Shanghai began to streamline its market economy, and quickly restored normal financial circulation and the supply of daily necessities. In 1952, Shanghai’s total industrial and agricultural output increased to RMB 6.357 billion from RMB 3.336 billion in 1949, and the ratios of primary, secondary and tertiary industries in its GNP were adjusted to 3.8%, 53.9%, and 42.3%. Subsequently, the First Five-Year Plan provided the foundation for Shanghai’s industry and had an influence on its economic development for some time to come.

History of Industries in Shanghai

3

At that time, China faced a complex international situation and such political issues as Taiwan’s liberation. An analysis of the internal and external situation indicates that there were three main factors affecting Shanghai’s economic development during this period. The first factor was China’s strategy to leave its coastal region undeveloped, affecting Shanghai and the coastal cities of Guangdong, Fujian, and Jiangsu. For instance, none of the 156 prioritized projects in the First Five-Year Plan was put in Shanghai. This strategy was a substantial restriction on investment needed for economic development. The second factor was the guiding ideology, which aimed to convert Shanghai from a consumer city into a producer city. In the immediate post-1949 period, Shanghai’s tertiary industry was fairly developed; light and textile industries formed a large proportion in secondary industry, and the city was regarded as a typical consumer center. At that time, the conversion from a consumer city to a producer city implied the sacrifice of tertiary industry in support of the development of secondary industry. The third factor was Shanghai’s internal development strategy. Shanghai’s industrialization during this period was characterized by the internal development strategy of “self-reliance.” This strategy followed the experience of socialist industrialization in the Soviet Union, where priority was given to the development of heavy industry. That is why this period saw an economic priority shift from a backward industrial structure with light industry as the mainstay, to heavy industry. Therefore, the ratio of light to heavy industries, in terms of fixed asset investment, remained at 1:8 for some time. Massive investment in heavy industry pushed forward its development in terms of both supply and demand. Another indirect effect of the internal strategy was to establish a mature industrial system. Hence, in the process, an improved and integrated industrial system was set up to provide a wide variety of industrial sectors. As a result, Shanghai’s industry covered almost every industrial sector, except for a limited number of energy sources, and industrial raw materials. These were the three factors that helped Shanghai grow gradually into China’s largest industrial base. The specific measure taken at that time to speed up heavy industry was to invest in key areas, bringing rapid development to the steel,

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machinery and electricity industries. A dramatic transformation took place in 1960, when the percentage of heavy industry surpassed that of light industry for the first time. During the 1960s, the priority of development was given to 18 significant technologies, in order to set up six new industries. Such an adjustment played a decisive role in molding Shanghai’s basic industrial structure. This momentum continued into the 1970s, leading to the formation of a comprehensive, integrated, industrial system, with metallurgy, chemicals, machinery and textiles as the four main industries. Despite the strategy of leaving the coastal regions undeveloped in the first stage, Shanghai still enjoyed a high position in the domestic economy, and received much attention from the central government. During 1949–1978, with 0.00067% of the land and 1% of the population in China, Shanghai contributed 16.7% of the national fiscal income and 10% of industrial output. In terms of per capita labor productivity in fully state-owned enterprises, Shanghai was 1.3 times the national average in 1952, and this figure rose to 2.4 times in 1978. In the same year, Shanghai accounted for 7.5% of the national GDP, 19.6% of national fiscal income, 29.6% of the total exports and 4.2% of investment. In other words, Shanghai, with just 4.2% of investment, contributed 7.5% to the country’s GDP, 29.6% to exports, and 16.9% to fiscal income. At that time, a very important external factor for Shanghai’s development was the access to the cheapest raw materials from across the country, which guaranteed economic efficiency. Shanghai lacked mineral resources, and its industrial development depended mainly on a consistent supply of raw materials and energy from the interior. Shanghai was known nationwide for its leading technology; thus, it was more efficient to provide Shanghai with a secured resource supply. Admittedly, low feedstock prices and the relatively high prices of finished products put Shanghai at an advantageous position in the division of labor in the country, and played a pivotal role in its development. A lack of resources resulted in an inherent requirement for more sophisticated processing, which in turn brought about an increasing number of new industrial sectors, and continuously improved the city’s industrial system. Shanghai’s strategic position in the domestic division of labor assured this change. In summary, leading technologies and the favorable position

History of Industries in Shanghai

5

in terms of resource allocation were the driving forces for its industrial development. Moreover, the rapid growth in Shanghai’s industry had also benefited from the secondary multiplier effect in the 1930s. The boom in the 1930s provided the city with the best infrastructure in China, and in the 1950s and 1960s, brought about relatively high investment returns in Shanghai’s industrial development. This was also the main internal factor for Shanghai’s rapid industrial growth in this period. However, Shanghai’s sudden industrial expansion was not accompanied by large investments in urban construction, resulting in a serious lag in infrastructure. For 30 years, prior to China’s reform and opening-up, Shanghai only accounted for 3.6% of the country’s total infrastructure expenditure. Its total spending on urban infrastructure from 1950–1978 was a mere RMB 6.008 billion. Apart from a few industrial satellite towns, the main approach was to develop almost 200 factories in the downtown area, with very little spending on infrastructure facilities. The resulting high returns from investment were almost impossible for other countries in the same period. But this also created environmental and transportation pressure on Shanghai’s future city development, and these factories were relocated during the structural adjustment carried out in the 1990s. During the 1970s, technical equipment in many enterprises became increasingly outdated as a result of a lack of continued investment. At the beginning of the period of reform and opening-up, the authorities conducted an extensive survey of Shanghai’s industry, and the findings were shocking. According to a survey of 88,000 items of equipment in light industry, 40% of the equipment remained at the technical level of the 1930s/1940s, 50% was at the technical level of the 1950s, and only 10% was at the level of the 1960s/1970s. 43% of dyeing and finishing equipment for wool in the textile industry was installed before 1949. Most machining tools were still of the primary processing type, such as planes and lathes. In addition, Shanghai’s factory buildings were badly congested. For example, the passages, corridors, and workshops at the Shanghai Watch Factory were packed with cocklofts. With outdated and inefficient technical equipment, it was very difficult to fabricate high quality products.

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In this period, the development of Shanghai’s three industrial sectors was unbalanced. From 1952–1978, Shanghai’s average annual GDP growth was 8.76%, with 2.71% for primary industry, 10.7% for secondary industry, and 4.57% for tertiary industry. The proportion of primary industry in GDP dropped from 5.9% to 4%; secondary industry rose from 52.4% to 77.4%, and tertiary industry dropped from 41.7% to 18.6%. In other words, tertiary industry shrank while secondary industry grew rapidly, and this imbalance seriously hindered Shanghai from functioning as a comprehensive city. Shanghai’s transformation from a comprehensive to a producer city came about at the loss of some key urban economic functions, such as finance and trade. Moreover, industries of high energy and material consumption as well as high capacity, such as chemicals and metallurgy, took the lion’s share. This imbalance had negative consequences for a city which was seriously short of materials. Yet from 1940–1979, its GDP grew 9.5 times, with energy consumption rising 24 times, and steel consumption jumping 75 times. Secondly, the city suffered from acute traffic congestion due to its industrial growth. Every year, huge consignments of materials from different places were transported to Shanghai for industrial production and processing, while large quantities of finished industrial products were shipped out, to all parts of the country.

1.2 Second Stage (1978–1991) The second developmental stage was a period of slower growth for Shanghai’s economy, with an average annual GDP growth of 7.4%, 1.6 percentage points lower than the national average. For 30 years after the founding of the People’s Republic of China (PRC), it was the unusually high returns from industry that underlay an exceptional turnover rate of Shanghai’s fiscal revenue to the central government. It is estimated that the average annual turnover rate was as high as 87%. Since the 1980s, a fiscal revenue responsibility system had been implemented in other regions of China, but for Shanghai, the central government still followed the old system, resulting in as high a fiscal turnover burden as ever. On the other hand, as the secondary multiplier effect had diminished, Shanghai’s industry experienced a reduced economic influence on outlying regions. With

History of Industries in Shanghai

7

fundamental changes in the planned economic system, Shanghai’s high industrial returns began a reverse trend. Firstly, the lag in infrastructure resulted in a sharp decline in investment returns. The historical advantage gained in infrastructure had been used up within the 30 years of industrial expansion. Moreover, for 35 years, during which a uniform collection and spending system was adopted for fiscal revenue, the central government funneled only 1% of the city’s fiscal turnover as investment in municipal facilities. Secondly, the price transfer effect experienced a reverse trend. After 1978, China reformed its planned material supply system, and gradually established a “double-track” price system for means of production. “Double-track” refers to two economic systems: one was the planned economy controlled by the central government; the other was the market economy. Mandatory national planning had been decreasing for some time, leading to fewer materials being allocated to Shanghai both in quality and variety. More specifically, the proportion of planned supply of energy resources and materials to Shanghai dropped sharply from 80% in 1978, to about 25% in 1988. A rapid drop in the supply of raw materials and resources at par caused a continuously increasing cost to Shanghai’s industry and a gradual decrease in economic efficiency. While the prices of energy and raw materials went up sharply, it was hard to get a corresponding price raise for Shanghai’s industrial products, because of price controls and intervention from the main places of origin and sale. This price difference resulted in accumulated tax and profit of over RMB 5 billion flowing from Shanghai to other places in China. Thirdly, the economy of scale dwindled in most areas. Overall, the reputation of Shanghai’s products as the country’s finest was challenged, and the share of Shanghai products at home and abroad decreased dramatically. As Shanghai’s conventional market scope was gradually shrinking, products from other places were flooding the Shanghai market. The 1980s was a painful decade when Shanghai’s long-term dominant industries gave way to others, and little by little, the city lost its prominence in the domestic market. Moreover, the early-starter advantage gained by sister provinces and municipalities during the gradual nationwide reform put severe pressure on Shanghai, accelerating the decrease in the share of Shanghai’s products in the domestic market.

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In the 1980s, Shanghai played the role of “backfielder” in reform and opening-up to the outside world, slowing down its pace of development. When Shenzhen, together with Hainan and other cities, was first opened up in a pilot project, Shanghai was brushed aside in the early stages of the opening-up and reform in view of its special position in China’s economic structure. Therefore, the policy barrier restricted Shanghai’s economic development. With regard to the development of the three industries, Shanghai’s GDP grew at an average annual rate of 9.9%, from 1979–1991, with 9.4% in primary industry, 7.9% in secondary industry, and 15.7% in tertiary industry. Rapid growth in tertiary industry led to its increasing proportion in the national economy. During the initial stage of opening-up and reform in 1979, tertiary industry contributed to 18.8% of the GDP, which jumped to 34.6% in 1991 after experiencing a rapid growth in the 1980s. The proportion of secondary industry decreased from 77.2% in 1979 to 61.7% in 1991 and that of primary industry dropped from 4.0% to 3.7%. Shanghai is China’s largest economic center, but its primary industry, agriculture, has always made up a small share of the national economy. For example, in 1978, its gross agricultural output only accounted for 3% of the city’s GDP. However, the city’s reforms in industry and the economic system began with agriculture. At that time, the suburbs accounted for more than 95% of the city’s total land area and 49% of the total population. These suburbs were mainly responsible for supplying nonstaple food to the entire Shanghai municipality. That is why structural adjustments in agriculture were of special significance to Shanghai. When the household contract responsibility system was implemented in some provinces and municipalities, Shanghai was unsure how to reform its rural economic system. In Shanghai’s countryside, production was arranged in three administrative tiers: the lowest level was the production team, the next was the production brigade, and the third was the people’s commune. These levels had already developed into economic units, which possessed a fair amount of fixed assets, such as agricultural machinery and facilities. For example, in 1979, fields ploughed by tractors, and those mechanically drained and irrigated in Shanghai accounted for 86.9% and 98.2%, respectively, of Shanghai’s farming area. Additionally, industrial

History of Industries in Shanghai

9

enterprises set up by production teams in the countryside contributed to 35% of the gross agricultural output, which was far higher than the national average. That was why the household contract responsibility system was not implemented in Shanghai’s rural areas until 1983. Two key factors for Shanghai’s countryside were the implementation of the household contract responsibility system and the reorganization of the people’s commune system. These changes motivated a vast number of farmers to improve productivity, raise production levels, and improve the marketability of agricultural products. For instance, labor productivity improved 1.57 times in 1985 over 1982, and the marketability of cotton, oil seeds, vegetables, and other nonstaple food products stayed above 95%. In 1988, Shanghai promulgated “Decision to Construct Nonstaple Food Production Bases in Shanghai and Reform Production and Sales Systems” in order to ensure a stable supply of agricultural products to the city. This reform was designed to adjust the agricultural structure in light of the new trends of suburban agriculture. In 1992, animal husbandry output reached RMB 3.72 billion, exceeding crop production for the first time by six percentage points. Animal husbandry contributed to 47% of the total agricultural output. Shanghai’s industry went through two development periods within 13 years. The first period (1978–1984) was mainly characterized by economic rehabilitation and adaptation, with an emphasis on developing products with short investment cycles in order to increase production supply capacity, upgrade product quality, and fill the market gap. Through two years of rectification (1977–1978), Shanghai’s industry recuperated somewhat, but overall improvement in industrial structure only began in 1979. In accordance with the policy of “adjustment, reform, rectification, and improvement” made by the central government in April 1979, Shanghai formulated a three-year economic adjustment plan. Adjustment measures adopted included speeding up consumer goods production, reorienting the service of heavy industry, and conducting industrial restructuring. Thus, the gross industrial output value of the city increased to RMB 72.812 billion in 1984, representing a growth of 47.7%, in terms of the gross industrial output value index, over the previous seven years. The proportion of light industry in Shanghai’s industrial system continuously increased, from 51.8% in 1978 to the highest

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point of 58.1% in 1981. During this period, there was a reasonable increase in the output of such main industrial products as bicycles, sewing machines, watches, and music recorders. From 1978–1988, seven industries grew rapidly at a rate of over 10%. These were fodder, electronics and communication equipment manufacturing, garments, arts and crafts, beverages, plastic products, and chemical fibers. All of these were in light and electronics industries, which conformed to the country’s policy of giving priority to the development of light industry. The second period (1985–1991) focused on fostering the pillar industries. In order to achieve a transformation from extensive to intensive industry, Shanghai embraced the principle that its industry should aim to be energy- and material-efficient, and technology-intensive. From 1986, Shanghai restructured 19 sectors, including automobiles, power station equipment, iron and steel, petrochemicals, tires, and household appliances. At the end of 1990, it prioritized development in such sectors as sedan manufacturing, communication equipment, microelectronics and computer making, power station equipment, petrochemicals, electromechanical and chemicals, mechatronics, equipment, household appliances, and refined chemicals. This adjustment continued into the eighth FiveYear Plan period, when Shanghai was still focusing its efforts on fostering its six pillar industries. In addition, through several major adjustments in the 1980s, Shanghai set up eight industrial zones, such as Pengpu and Beixinjing, in its immediate outskirts. In the remote outskirts, priority was given to the construction of seven industrial satellite towns, such as Wusong and Jinshan. However, although the urban area continuously grew, there was no overall geographical redistribution of industries; most were still located in the vicinity of the city center. By the end of 1987, within a 261-kilometer downtown area of Shanghai (excluding Wusong and Minhang Districts) were stationed 5,603 industrial enterprises, employing 2,162,400 people and generating a gross industrial output value of RMB 61.028 billion. This accounted for 47%, 60%, and 66%, respectively, of the city’s gross output value. On average, there were 22 enterprises per square kilometer, with 8,285 employees, and a gross industrial output value of RMB 234 million. In the 149-kilometer old city area, which was composed of

History of Industries in Shanghai

11

ten districts, each square kilometer typically held 34 enterprises, with 13,965 employees, and a gross industrial output value of RMB 360 million. Various industries took up 53.5 kilometers of the inner city, which represented 20.5% of the total downtown area. This shows that the key problem was the industrial layout, with overcentralization in central Shanghai, particularly in the old city area. Large factory buildings located along the Huangpu River and in other downtown areas hindered tertiary industry from full development.

1.3 Third Stage (1992–Present) After Deng Xiaoping made his inspection tour of southern China in 1992, Shanghai made a decision to conduct strategic adjustments to its industrial structure. This was in accordance with the strategies formulated at the CPC Fourteenth National Congress to build Shanghai into “One Leader and Three Centers.” A clear-cut industrial development principle was put forward, giving priority to tertiary industry, adjusting secondary industry, and steadily improving primary industry. In the Eighth Five-Year Plan period (1991–1995), Shanghai persistently followed this principle in stepping up its efforts to promote industrial upgrading through restructuring. An idea was put forward that industrial structure should be adjusted in light of the city’s function and social environment. Shanghai explored new approaches to achieve harmony between economic development, social progress, and the city’s prosperity, making Shanghai’s industrial structure increasingly efficient. The proportions between primary, secondary, and tertiary industries were adjusted from 4.3:64.9:30.8 in 1990 to 2.3:57.6:40.1 in 1995. Tertiary industry, the new growth points were high-tech industry, and the six-pillar manufacturing industries (automobiles, communication equipment,1 power station equipment,2 petrochemicals and refined chemicals, iron and steel, and household electronic and electrical appliances). Tertiary industry continued to grow fast, as its portion of GDP

Changed to information and communication equipment in 1996. Changed to power station equipment and large electromechanical equipment in 1996. 1 2

12

SHANGHAI INDUSTRIES

increased from 34.5% in 1990 to 45.1% in 1995. The high-tech industry also experienced fast development, accounting for about 10% of the city’s gross industrial output value in 1995. A golden opportunity appeared for the construction industry with the astonishing advances in city construction centered on urban road networks and the development of the district of Pudong. In 1995, the city’s construction industry achieved a gross output value of RMB 39.1 billion, with areas under construction amounting to 35,130,000 square meters, and completed areas reaching 11,810,000 square meters. Suburban agriculture developed rapidly, with a secured supply of staple food to the suburbs and nonstaple food to the city. Meanwhile, the city speeded up the pilot project of building large-scale and intensive installation agriculture bases. In the Ninth Five-Year Plan period (1996–2000), Shanghai continued to implement its industry development policy for tertiary, secondary and primary industries. In accordance with the principle of “informed decisions and calculated choices,” it made further efforts to adjust its industrial structure and the internal structure of different sectors. According to the government requirement to integrate the city and the countryside, the productivity configuration and the city’s functional layout were continually optimized to drive industries to become more efficient, advanced, and modern, to add more stamina to Shanghai’s economic development, and to improve its service standards in connection with the city’s position as a dynamic economic center. The industrial growth rate continued to slow down, but remarkable results were obtained for some pivotal industries by aiming for higher targets. The six pillar industries (namely, automobiles, information and communication equipment, packaged power station and large electromechanical equipment, petrochemicals and refined chemicals, iron and steel, and household appliances) contributed more than 50% of gross industrial output value. The hightech industry developed rapidly, accounting for approximately 20% of gross industrial output value. It is worth mentioning that tertiary industry contributed to 49.59% of the GDP in 1999, exceeding secondary industry for the first time in history. And in 2000, the last year in the ninth Five-Year Plan period, the proportion of tertiary industry reached as high as 50.63%. This indicates that the driving force for Shanghai’s economic growth had changed from secondary

History of Industries in Shanghai

13

industry to a combination of secondary and tertiary industries. In the meantime, agriculture began a new path, changing from suburban agriculture to modern metropolitan agriculture. In the Tenth Five-Year Plan period (2001–2005), Shanghai’s top task was to improve its international competitiveness, to stress the development of primary and tertiary industries, and to encourage the growth of secondary industry. The city also continued its policy of developing industry in the sequence of tertiary, secondary, and primary. A great deal of effort went into the development of industries promising high value added and more job opportunities. Furthermore, the role played by scientific and technological progress and informatization in pushing forward industrial progress and the transformation of traditional industries, the role played by pillar industries in driving economic growth and structural upgrades, and the role played by the integration of different industries to promote industrial innovation, were strengthened to promote structural and industrial optimization. The six pillar industries established in this period were information, finance, business and trade, automobiles, packaged equipment, and real estate. In addition, the city made concerted efforts to develop four emerging industries as new areas of economic growth; the four were biomedicine, new materials, environmental protection, and modern logistics. Shanghai adopted a policy of highlighting key areas in traditional industries, and kept the policy flexible according to the actual status of a particular industry. For example, Shanghai encouraged the use of information technology to improve the process control level for large-scale and continuous processing industries, and continually optimized and developed petrochemicals and steel as the two basic industries. This method further compelled enterprises to adopt advanced, applicable technologies to transform traditional industries. An outstanding feature of this period was that a great deal of emphasis was placed on the development of metropolitan industries. Firstly, these industries included metropolitan agriculture, such as export-oriented agriculture, tourism agriculture, installation agriculture, and ecological agriculture. Secondly, to stay market-oriented, Shanghai also encouraged entrepreneurship in such metropolitan industrial sectors as clothing, food processing, interior decoration, packaging and printing,

14

SHANGHAI INDUSTRIES

cosmetics and detergents, diamond processing, arts and crafts, and cultural and sports products. Thirdly, metropolitan tourism was developed as a complement to business, culture, sports, and exhibitions. The Suggestions by CPC Shanghai Municipal Committee for Formulating the Eleventh Five-Year Plan for Shanghai’s Economic and Social Development was adopted in December 2005. This document outlined the importance of establishing a top-notch service industry and an advanced manufacturing industry in Shanghai and enhancing the city’s reputation as an international financial and shipping center. The document also placed particular emphasis on improving overall industrial standards through innovation.

2. Industrial Restructuring 2.1 Overall Analysis of the Structural Evolution in Shanghai’s Primary, Secondary, and Tertiary Industries To define and improve a city’s industrial structure, the first step is to analyze its current orientation and function. In stepping up its industrial restructuring, Shanghai acted in accordance with the policy of “One Leader, Three Centers” put forward by the central government. The city’s objectives for industrial restructuring were as follows: vigorously developing tertiary industry to expand its scale and improve its structure, actively adjusting secondary industry to upgrade its economic strength, and steadily improving primary industry. When China first established its industrial and national economic systems in the initial period after 1949, there was no competition at all, as the entire economy came under the planned system. Efficiency in the economic system was maintained largely by means of propaganda, motivation, and administrative directives from upper to lower levels. These factors, together with the disruptive effects of various shifts in government policies, resulted in volatile fluctuations followed by major restructuring; all these made it hard to break through regional barriers. Shanghai enjoys considerable geographical and historical advantages: it is located on the banks

History of Industries in Shanghai

15

of the Yangtze River, at the mouth of the Huangpu River, affording it access to both river and marine transportation; it is also rich in human and information resources. Its disadvantages lie in its limited land and natural resources. These characteristics determined Shanghai’s pattern of economic development in the years of the planned economy. Shanghai was once the jewel of China and the Far East, and a renowned financial, trade, and economic center. In 1952, shortly after the founding of the People’s Republic of China, the proportions of Shanghai’s primary, secondary and tertiary industries in GDP were 5.9:52.4:41.7, a figure similar to other internationally advanced cities. Due to a difficult international political climate, particularly economic sanctions imposed by the United States, China lost most of overseas markets, and was forced to foster relationships solely with socialist countries, such as the Soviet Union. Together with these vanished markets was also diminished the possibility of obtaining global financing and conducting international trade. As a result, Shanghai’s economy was largely focused on industrial development in order to adapt to socialist industrialization and implement a planned economy. As Shanghai’s function in the economy changed, the city gradually evolved from a multifunctional cosmopolis into a single-functional city, and from a comprehensive city into a producer city. From 1952–1978, Shanghai’s average annual GDP growth was 8.78%, with 2.71% for primary, 10.7% for secondary, and 4.57% for tertiary industries. In this period, the proportion of secondary industry in GDP increased from 52.4% to 77.4%, while the figure for tertiary industry dropped from 41.7% to 18.6%. A shrinking tertiary industry and a rapidly expanding secondary industry resulted in competition between these two industries. In 1949, the number of financial institutions shrank from 648 to four, and the financial market disappeared. Shanghai not only lost its strength in finance and trade, but also its advantage in secondary industry, in which industries with high energy and material consumption and high transport volume, such as chemicals and metallurgy, had had a substantial share. The real estate industry collapsed, after public ownership of land was adopted, and housing was incorporated into the welfare system in the 1950s. The service industry, including

16

SHANGHAI INDUSTRIES

such sectors as transport, post and telecommunications, and tourism, dragged its foot. In 1978, the city’s GDP split into primary, secondary, and tertiary industries was 4.0:77.4:18.6. In 1985, the State Council approved the Outline of the Report on Shanghai’s Economic Development Strategies. Subsequently, Shanghai treated industrial restructuring as a significant measure in its economic development. Finance, tourism, real estate, and consulting grew rapidly, helping the city rebuild its reputation as an economic hub. In the 1990s, a major turning-point opportunity appeared for Shanghai to boost its economic take-off. In view of the upbeat situation both at home and abroad at the turn of the millennium, Shanghai kicked off the development of Pudong. This was in part inspired by Deng Xiaoping’s initiatives, and later obtained considerable support from the central government. In June 1990, the central government announced a series of policies to support Pudong’s rapid infrastructure development and attract more foreign investment. Guided by the concept of relying on Puxi (the old city area), and seeking interactive development between Pudong and Puxi, Pudong could upgrade its industry by relying on Puxi’s industrial base. It could also tap idle assets, especially existing land assets, for the rebuilding of Shanghai into a modern financial and trade center, and for the optimization and adjustment of the city’s industrial structure. All these factors would attract large development investments and promote structural optimization. In December 1992, in light of the goal to build an international metropolis, the Shanghai Municipal Government decided to make strategic adjustments in the city’s industrial structure. The previous development sequence of “secondary, tertiary, and primary” was adjusted to “tertiary, secondary, and primary.” In other words, the order of priority was to prioritize tertiary industry, actively adjust secondary industry, and steadily upgrade primary industry. Through adjustment and relocation, land use for secondary industry was reduced while that for tertiary industry increased. Shanghai’s strategic objective was to reinvent itself as an international economic center with five basic functions: distribution, production, management, service, and innovation. Shanghai had to

History of Industries in Shanghai

17

make sure that its industrial structure was compatible with these core functions. Thus, Shanghai has persistently pursued the principle of “high added value, high technological content, increased integration between industries, low labor cost, and less pollution.” Industrial structure was adjusted on three levels: prioritizing tertiary industrial development, retaining part of the light and textile industry in the inner city, centralizing the development of some industries in the immediate suburbs (including machinery, electronics, automobiles, textile, heavy chemicals, and urban supporting industries), and developing basic and raw material industries in the outlying suburbs. In December 1995, Shanghai Municipal Government further specified the key areas for industrial development. For tertiary industry, focus was placed on six sectors: finance and insurance, commodity circulation, real estate, tourism, and consulting. For secondary industry, automobiles, information equipment for communication, packaged power station equipment and large electromechanical equipment, household appliances, petrochemicals and refined chemicals, and steel were treated as the six pillar sectors. Priority was also given to three high-tech industries: modern biology and new medicine, computer and large-scale integrated circuits, and new materials. The development of these 15 industries was designed to drive primary industry toward metropolitan agriculture, and bring substantial changes to the indices of Shanghai’s aggregate economic strength. Accordingly, tertiary industry, the six pillar industries and high-tech industries in secondary industry soon became the new growth areas in Shanghai’s economy. The Outline of the Eleventh Five-Year Plan for Shanghai’s National Economic and Social Development, passed in January 2006, further stressed the importance of forming an industrial structure with a service-based economy as its mainstay. Continuous efforts will also be made to transform the city’s development mode and improve its competitive strength. Priority was given to the development of a modern service industry and advanced manufacturing industries. The outline also highlighted a shift toward innovation-driven development, which would play an important role in promoting structural optimization and upgrading.

18

SHANGHAI INDUSTRIES

2.2 Analysis of Internal Changes in Shanghai’s Primary, Secondary, and Tertiary Industries Before the reform and opening-up of China, Shanghai’s industrial structure had three defining features: first, the production units were the main vehicle for economic activity; second, industrial output came last in the city’s GDP; and third, tertiary industry contributed little to the national economy. After 1978, a marketoriented economic reform started in China, which helped straighten out Shanghai’s irrational industrial structure. 2.2.1 Development of secondary industry According to “Industrial Categories in the National Economy” (GB/ T4754—2002), secondary industry refers to mining, manufacturing, production and supply of electricity, gas and water, and building industries. We will examine the development of Shanghai’s secondary industry by taking a look at the evolution of the city’s industrial structure. The stage of shifting emphasis from heavy industry to light industry (1949–1957) On the one hand, this was a recovery period for China’s national economy; on the other, it marked the implementation of China’s First Five-Year Plan (1952–1957). The identifying feature of this stage was that Shanghai’s industrial structure prioritized development in heavy industry, but light industry continued to develop. The production index for Shanghai’s heavy industry grew at an annual rate of 24%, far exceeding 11.3% for light industry. Heavy industry’s share increased from 11.8% to 29.1%. An important characteristic of a heavy industry-centered industrial structure is its dependence on the raw material industry. The proportion of raw materials within heavy industry rose from 28.1% to 41.4%, up 13.3 percentage points over 1949. Shanghai’s previous industrial structure was shaped by the order of light, textile, and heavy industries; after 1949, the order changed to heavy, light, and textile industries.

History of Industries in Shanghai

19

Table 1.1 Gross output values and proportions of Shanghai’s light and heavy industries (1957–1965)

1957 1958 1959 1960 1961 1962 1963 1964 1965

Light industry

Heavy industry

Gross industrial output value (RMB 100 mil.)

Gross Output value (RMB 100 mil.)

Proportion (%)

Gross Output value (RMB 100 mil.)

Proportion (%)

118.82 176.44 254.68 298.97 187.43 151.98 168.91 196.95 230.77

84.36 110.34 141.70 134.49 96.97 90.68 96.95 112.86 129.56

71.00 62.54 55.64 44.98 51.74 59.67 57.40 57.30 56.14

34.46 66.10 112.98 164.48 90.46 61.30 71.96 84.09 101.21

29.00 37.46 44.36 55.02 48.26 40.33 42.60 42.70 43.86

Source: Yearbooks of Shanghai Industrial Statistics for the years cited.

The stage of structural fluctuations (1958–1965) During this period, Shanghai’s industrial structure, impacted by two major industrial reorganizations and the “Great Leap Forward,” experienced extreme fluctuations, which were mainly reflected in the major ups and downs in light and heavy industries (Table 1.1). With regard to industrial layout, from 1959 to 1966, Shanghai established and expanded ten suburban industrial zones (Wusong, Yunzaobang, Pengpu, Taopu, Beixinjing, Caohejing, Changqiao, Gaoqiao, Qingningsi, and Zhoujiadu). These zones, along with the five satellite towns established in the 1950s (Minhang, Wujing, Anting, Jiading, and Songjiang), formed a circle around the city area of Shanghai. The stage of arduous development caused by severe industrial fluctuations (1966–1976) During the ten-year Cultural Revolution (1966–1976), political instability seriously disrupted Shanghai’s industry, causing enormous losses. However, there was still some progress in Shanghai’s industry




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History of Industries in Shanghai

21

the planned output values and volumes for steel, electricity, and other industries were still fulfilled or even overfulfilled. During the Fourth Five-Year Plan period, Shanghai’s industries registered an annual average growth of 7.48% despite economic fluctuations and political upheavals. The stage of industrial adjustment and recovery (1977–1983) The ten years of the Cultural Revolution brought enormous losses to Shanghai’s industry. In order to recover from the unrest and restore a normal order to production, China took remedial measures at the end of 1976 to get its industrial enterprises back on track. At that time, emphasis was placed on industries of all types in Shanghai. From October 1976 to the end of 1978, Shanghai adopted the following six measures to recover its industrial prowess: (1) Streamline leadership at various levels, and restore the director responsibility system under the leadership of the Party Committee; (2) Conduct an educational campaign to learn from Daqing; (3) Improve and enhance management in industrial enterprises; (4) Conduct a “Quality Month” campaign to improve product quality; (5) Promote a socialist labor excellence drive with a focus on economizing and increasing production; (6) Restore the bonus system to increase employees’ incomes. The implementation of these policies successfully restored Shanghai’s industry, yet problems remained with the industrial structure under the combined effect of the planned economy and the Cultural Revolution. In 1979, in order to carry out the central government’s policy of “adjusting, reforming, streamlining, and improving,” Shanghai formulated a Three-Year Economic Adjustment Plan to solve the conflict between industrial development and the people’s standard of living. It also emphasized the development of light and textile industrial products and encouraged more exports. The plan also called for a concerted effort to develop science and technology and propel the national economy with modern advanced technology. Through years of adjustment, Shanghai’s industry made some headway (Figure 1.1), and the ratio of light to heavy industries changed from 49.3:50.7 in 1978, to 55.1:44.9 in 1983.

22

SHANGHAI INDUSTRIES Figure 1.1

Shanghai’s industrial development (1978–1984)

RMB 100 mil. 800

% 14

700

12

600

10

500

8

400 6

300

4

200

2

100 0

1978

1979

1980

1981

Gross industrial output value

1982

1983

1984

0

Growth rate

Source: Yearbooks of Shanghai Industrial Statistics for the years cited.

The stage of a market–oriented industrial economy (1984–1991) This was the stage when China developed toward a market economy in all aspects. In December 1984, the State Council approved the Outline of the Report on Shanghai’s Economic Development Strategies, which underlay Shanghai’s industrial policies in the mid- and late 1980s. In terms of structural adjustment, the outline favored a nonequilibrium industrial development strategy, which relied on leading industries to fuel the take-off of industry as a whole. It also proposed to shift Shanghai’s industrial growth pattern from extensive to intensive in light of the concept of “low energy and material consumption, low transport volume, low waste, high technological content, and high added value.” Shanghai entered a period of fostering its pillar industries and adjusting the mix of leading products. In 1988, there was an overheating in the national economy, leading to a fairly serious fluctuation in Shanghai’s industrial growth (Figure 1.2). On the whole, however, because of the industrial

History of Industries in Shanghai Figure 1.2

23

Shanghai’s industrial development (1985–1990)

RMB 100 mil. 3,000

% 16 14

2,500

12 2,000

10

1,500

8 6

1,000

4 500 0

2 1985

1986

1987

1988

Gross industrial output value index

1989

1990

0

Growth rate

Source: Yang, Gongpu, and Xia, Dawei, A Report On Shanghai’s Industrial Development: A Course of Fifty Years, Shanghai: The Publishing House of Shanghai University of Finance and Economics, 2001.

restructuring in 1989 and 1990, the nationwide conflict between aggregate supply and demand was eased by 1991. The stage of strategic industrial adjustments (1992–1997) To build Shanghai into “One leader and Three Centers,” Shanghai Municipal Government decided to carry out strategic adjustments to the city’s industrial structure at the end of 1992. The development sequence of “secondary, tertiary, and primary” was adjusted to “tertiary, secondary, and primary,” which meant prioritizing the development of tertiary industry, actively adjusting secondary industry and steadily improving primary industry. Six pillar industries were also defined and established during this period from the end of 1993 to the beginning of 1994 (Table 1.4). The stage of continued optimization of industrial structure (1997–present) Despite the healthy growth pattern of the six pillar industries in the mid- and late 1990s (Figure 1.3), their head-start effect and stimulation of Shanghai’s economy began to wane by varying

24

SHANGHAI INDUSTRIES

Table 1.4

Summary of output values of Shanghai’s six pillar industries (Unit: RMB 100 mil.) 1994

1995

1996

1997

1998

1999

Iron and steel

584.01

625.73

526.72

542.40

501.58

520.32

Automobiles

258.10

376.23

412.65

476.33

494.81

593.15

Electronic communication equipment

96.47

134.40

133.06

195.60

287.82

309.75

Packaged power station equipment and large electromechanical equipment

94.27

204.93

286.78

249.66

223.50

243.45

Petrochemicals and refined chemicals

399.55

639.69

593.19

700.41

532.91

599.85

Household electric appliances

179.70

219.10

201.50

231.99

234.96

332.65

Source: Yearbooks of Shanghai Statistics for 1994–1999.

Figure 1.3 Positions of six pillar industries in Shanghai’s industry in 1999 Iron & steel 10.07%

Others 49.70%

Household appliances 6.44%

Automobiles 11.48% Electronic communication equipment 6%

Packaged power station and large electromechanical equipment 5% Petrochemicals & refined chemicals 11.61%

Source: Yearbook of Shanghai Statistics for 2000.

degrees. It was against this economic backdrop that Shanghai set the strategic target to “face the new century with optimism, attain new heights, and create new splendors” with a view to further optimizing industrial structure. In manufacturing, new leading industries slowly emerged, including information, modern biology

History of Industries in Shanghai

25

and new medicine, and new materials. Shanghai accelerated the industrialization of scientific research findings while at the same time adopting high technologies in industries. The city continued to nurture its six pillar industries and increase the value added of their products; high technologies were employed to improve the development of traditional industries, fostering new economic growth areas. A new industrial structure featuring high-tech and advanced processing gradually took shape. In 2000, Shanghai Municipal Government adjusted the pillar industries for the Tenth Five-Year Plan as follows: electronic information equipment, automobiles, petrochemicals and refined chemicals, fine steel, power station equipment and large packaged equipment, and modern biomedicine. It can be seen that this adjustment put even more emphasis on the role of new technologies for the pillar industries. This structural optimization was rewarded with remarkable results. In 2004, these pillar industries achieved a gross industrial output value of RMB 832.38 billion, up 23.9% over the previous year, accounting for 64.6% of the total output value of industrial enterprises above the designated scale in Shanghai, and pushing the city’s industry up by 14.8% (Figure 1.4). Figure 1.4

Indices for Shanghai’s six pillar industries in 2004

RMB 100 mil. 4,000 3,500 3,000 2,500 2,000 1,500 1,000

Total Profit

Sales income

e dic in me Bio

Pa eq ckag uip ed me nt

l tee Fin es

Pe ref troch ine em d c ic he als mi ca & ls

Au tom

El inf ectro orm ni ati c on

0

ob iles

500

Gross industrial output value

Source: Data from Shanghai Statistic Bureau.

26

SHANGHAI INDUSTRIES

The Outline of the Eleventh Five-Year Plan for Shanghai’s National Economic and Social Development approved in January 2006 required that the level, quality, and competitive edge of the manufacturing industry should be further improved so as to fully utilize Shanghai’s unique advantage as a strong manufacturing base. The future of Shanghai depended on large industries, projects, and bases. Therefore, efforts would be redoubled to implement the branding strategies and enhance the city’s innovation capability in order to establish, as soon as possible, a group of internationally competitive large enterprises and top brands supported by their own intellectual property rights (IPR). At the same time the manufacturing base would be relocated to the suburbs (Figure 1.5). Development of high-tech and metropolitan industries In March 1999, Shanghai’s municipal government pointed out in a report titled Building New Heights for Shanghai’s Industry that Shanghai should form an industrial system made up of high-tech industries, pillar industries, and a metropolitan industry. These industries have now become important drivers of Shanghai’s economic development. Shanghai’s high-tech industry is mainly composed of such fields as electronic information, biomedicine, photo-mechanic-electronic (PME) integration, environmental protection, aerospace, geospace, marine engineering, and nuclear technology application. In 1992, Shanghai’s high-tech industry only took up 4% of the gross industrial output value; in 2005, the high-tech industry achieved a gross output value of RMB 482.667 billion, up 22% over 2004, and accounting for 28.6% of the city’s gross industrial output value. By 2006, Shanghai had formed a cluster of high-tech industries, with a focus on electronic information, biomedicine, and new materials. Meanwhile, one zone and six parks were established, including Zhangjiang High-Tech Park, Caohejing New Technological Development Zone, Shanghai University Science and Technology Park, China International Textile Science and Technology Industrial City, Jinqiao Modern High-Tech Park, and Jiading Technology Intensive Zone for Non Government Companies. This has enabled the city’s industrial layout to gradually move from a scattered pattern to a clustered one (Table 1.5).

History of Industries in Shanghai Figure 1.5

27

Layout of Shanghai’s industrial zones and high-tech parks

Chongming Industrial Park

Jiading Industrial Zone

Waigaoqiao Bonded Area

Baoshan Urban Industrial Zone

Qingpu Industrial Park

Caohejing New-Tech Development Zone

Jinqiao Export and Processing Zone Zhangjiang High-Tech Park Kangqiao Industrial Zone

Xinzhuang Industrial Zone

Zizhu Science Park Songjiang Industrial Zone

Minhang Economic and Technological Development Zone

Comprehensive Industrial Development Zone

Spark Development Zone

Jinshan Industrial Zone Source: from the official website of Shanghai Municipal Economic Commission (http//www.shec.ov.cn/shec/jsp/gssj/shxdgyyq.jsp).

Metropolitan industry refers to an industry that can comply with the requirement for the sustainable development of a metropolis, sufficiently utilize the metropolitan means of production, create employment opportunities, and satisfy such unique needs and requirements as residents’ needs for consumption upgrading and urban environmental protection. The evolution of metropolitan industry requires a city to gradually phase out its traditional manufacturing industries, and upgrade the technical levels of urban industries. The period of 1996–1997 saw much preparation

6.84

0.61

0.04

Geospace & marine engineering

Nuclear technology application

Source: Yearbooks of Shanghai Statistics for the years cited.

2.22

Aerospace

219.26

New materials

Environmental protection

137.09

0.12

2.55

9.02

7.88

306.62

194.15

152.96

Biomedicine

P-M-E integration

2003 1997.70

1999

575.02

Year

Gross industrial output value

0.02

0.36

1.4

0.76

34.15

42.84

149.88

1999

0.06

1.09

2.65

2.51

92.60

59.22

401.54

2003

Industrial value added

0.04

0.62

6.73

2.32

134.91

148.08

554.2

1999

0.13

2.46

8.78

7.46

305.92

186.38

1970.82

2003

Industrial sales

—

0.03

0.08

0.24

7.94

11.57

59.78

1999

0.01

0.24

0.11

0.59

25.54

15.25

50.08

2003

Total profit

Comparison of Shanghai’s high-tech industries, 1999 vs. 2003 (Unit: RMB 100 mil.)

Electronic information

Table 1.5

—

0.05

0.07

0.13

5.58

11.35

36.82

1999

0.01

0.12

0.19

0.25

11.01

12.35

25.40

2003

Total tax

28 SHANGHAI INDUSTRIES

History of Industries in Shanghai

29

and planning; by 1998, Shanghai officially announced its plan to develop metropolitan industry, while still optimizing and upgrading its existing industries. The metropolitan industry did not see a substantial kickoff in Shanghai until 2000. The focus was placed on clothing and apparel, food processing, packaging and printing, interior decoration, cosmetics and detergents, arts and crafts, tourism products, and small electronic and information products. Shanghai’s metropolitan industry witnessed fast development in the next few years (Table 1.6). During the Tenth Five-Year Plan period, Shanghai focused on the building of metropolitan industrial parks in the city center. Development of the construction industry As a constituent part of secondary industry, the construction industry covers buildings, civil engineering construction, architectural installation and decoration, among other things. As one of the world’s major cities, Shanghai boasts a well-developed construction industry. As early as the Ming and Qing dynasties, Shanghai was known as the “Metropolis of Southeast China.” The period from the founding of the People’s Republic in 1949 through the initiation of opening-up and reform in the late 1970s saw the birth and growth of the construction industry in Shanghai, which played an important role in socialist construction. Huadong Construction Engineering Co., established in November 1949, was the first large state construction company in Shanghai. In the first eight years after 1949, a total investment of RMB 928 million was channeled into Shanghai for the construction of industrial and transport facilities, with 78.7% going to the upgrading of existing facilities, and 21.2% to new projects. The rate of newly added fixed asset was 89.4%, paving the way for future development. During the “Great Leap Forward” period, when the guiding policy was to treat steel as the mainstay and put tremendous effort into the development of heavy industry, Shanghai’s construction industry made considerable progress, with a fair number of steel mills being newly built and remodeled. It also created a record by completing the construction of the Rotary Furnace Workshop of Shanghai Steel No. 5 Mill in just two months. With regard to

250

Small electronic information products

2004

4,758

220

691

239

893

768

641

1,306

Source: Yearbooks of Shanghai Statistics for 2001 and 2005.

2,330

996

Arts, crafts, and tourism products

Total

189

1,092

Cosmetic and detergents

1,191

Interior decoration

895

Packaging and printing

Food processing

1998

1,808

Year

Number of enterprises

70.91

3.37

12.11

2.54

8.71

8.15

11.48

24.55

1998

67.95

4.69

9.65

2.3

8.72

5.68

8.61

28.3

2004

Employees (10,000)

1,051.81

58.52

140.42

105.00

129.80

87.50

270.79

259.78

1998

1,570.55

140.43

198.51

130.36

196.41

130.86

361.47

412.51

2004

Total output (RMB 100 mil.)

22.67

2.25

3.57

3.97

2.33

3.73

3.98

2.84

1998

90.42

14.68

9.50

8.39

14.23

11.57

14.73

17.32

2004

Total profit (RMB 100 mil.)

Comparison of Shanghai’s metropolitan industry, 1998 vs. 2004

Clothing

Table 1.6

32.63

3.25

5.13

5.72

3.36

5.37

5.72

4.08

1998

54.08

4.01

4.17

9.36

4.31

6.06

18.78

7.39

2004

Total tax (RMB 100 mil.)

30 SHANGHAI INDUSTRIES

History of Industries in Shanghai

31

chemical industry, Wujing, Wusong, Gaoqiao, and Taopu were opened up as the four chemical bases. The three bases constructed for electromechanical industries were Minhang, Pengpu, and Anting. Light industry, textiles, and transportation also registered some development. The construction of satellite towns was an enormous achievement. Five satellite towns—Minhang, Wujing, Jiading, Anting, and Songjiang—were successively built. In sum, the construction industry contributed considerably to the development of Shanghai’s basic industries, changing its industrial structure and layout. At the beginning of the Cultural Revolution, the production commanding system was paralyzed for a time in enterprises, leading to a significant drop in production levels. Shanghai Construction Engineering Bureau and its subordinate organizations were in the red for three years straight (1967–1969) due to a bleak performance. From the 1960s to the late 1970s, Shanghai’s construction industry implemented a strict planned system. As statutory profit was not calculated, construction enterprises became non-profiting units with the sole goal of realizing state investments. The industry fluctuated with adjustments in national infrastructure construction, and its pace of development was seriously hindered. After China started opening-up and reform, the State Council announced the development of Pudong in 1990. During his visit to the city in 1992, Deng Xiaoping recommended that Shanghai should aim to “have a new look every year, and make big changes within three years.” This ushered Shanghai’s construction industry into a stage of sustainable, fast, and sound development (Figure 1.6). The rise of tall buildings is one of the remarkable features of Shanghai’s fast growing construction industry at this stage. By the end of 1994, Shanghai had a total of more than 1,300 high-rise buildings. High-rise industrial plants were also springing up rapidly. More than 70 companies in electronics, instruments, textiles, clothing, and pharmaceutical sectors had industrial plants of eight to sixteen levels. After entering the 21st century, Shanghai experienced robust economic growth, creating a conducive environment for Shanghai’s construction industry. In the Tenth Five-Year Plan period, investment in Shanghai’s municipal projects alone amounted to RMB 81.4 billion. In 2003, the project completion value for Shanghai’s construction

32

SHANGHAI INDUSTRIES Figure 1.6

Gross output value of Shanghai’s construction industry since opening-up and reform

RMB 100 mil. 2,000 1,800 1,600 1,400 1,200 1,000 800 600

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

400 200 0

Source: Yearbook of Shanghai Statistics (2005).

enterprises exceeded the benchmark of RMB 100 billion for the first time, reaching RMB 119.58 billion; in 2005, this figure grew to RMB 189.297 billion. China’s success in the bid for the 2010 World Expo had brought unlimited opportunities to the city’s construction industry. Direct investment in the construction of the Expo Park would amount to US$3 billion; investments in city construction and related industries were estimated to range between US$15 and 30 billion. Clearly Shanghai’s construction industry was set to embrace a new round of quick growth. 2.2.2 Development of tertiary industry Tertiary industry refers to any industrial sectors other than primary and secondary industries, and it is also called the service industry. This section reviews the history of Shanghai’s tertiary industry. Prior to the War Against Japan (1937–1945), Shanghai remained a major trading, financial, and transportation center in South China and the Far East, boasting a well developed tertiary industry. After the founding of the People’s Republic in 1949, Shanghai’s tertiary

History of Industries in Shanghai

33

Figure 1.7 The changing proportion of tertiary industry in Shanghai’s GDP % 60 50 40 30 20 10 2004

2000

1999

1995

1990

1987

1980

1972

1950

0

Source: Yearbooks of Shanghai Statistics for the years cited.

industry experienced a checkered path of development (Figure 1.7). To understand its unique development, it is best to walk through the three stages of this industry. The First Stage: 1949–1978 After three years of economic recovery, primary, secondary, and tertiary industries accounted for 3.8%, 53.9%, and 42.3% of Shanghai’s GNP respectively in 1952. In 1957, the last year of the First FiveYear Plan, the proportion of tertiary industry dropped to 37.1%, yet its growth rate had not slowed down, and reached 11.4% that year. After that, due to the impact of the leftist guiding concept of turning a consumer city into a producer city, many commercial units were disbanded and combined, while numerous employees in tertiary industry were shifted to other industries. Thus, the proportion of tertiary industry in the national economy dropped continually from 21.1% in 1965 to 17.32% in 1972 and just 18.4% in 1978. The second stage: 1979–early 1990s After 1978, Shanghai’s role in opening-up and reform changed from a backfielder to a forward, and the proportion of its tertiary industry increased continuously from 18.4% in 1978, to 25.1% in 1984, and

34

SHANGHAI INDUSTRIES

then to 36.14% in 1992. During this period, vigorous development of tertiary industry became the heart of Shanghai’s industrial policy so as to improve the city’s attraction and enlarge its regional economic influence. Throughout the 1980s, the proportion of tertiary industry rose, on average, by one percentage point per year, coming close to 30% by the end of the decade. In terms of development areas, the reviving tertiary industry at this stage focused on restoring urban life conveniences, and the daily service sectors achieved allround growth. From the end of the 1980s to the beginning of the 1990s, Shanghai’s tertiary industry experienced four to five years of adjustment, and its contribution to GDP stood around 30%. The third stage: from the early 1990s to the beginning of the 21st century The 1990s was a period in which Shanghai made strenuous efforts to upgrade its industrial structure. Deng Xiaoping’s remarks during his inspection tour of South China, and the development and opening of Pudong, provided a strong boost to the development of Shanghai’s tertiary industry. After the implementation of the industrial development strategy of “tertiary, secondary, and primary” in 1992, the proportion of Shanghai’s tertiary industry, driven by finance, trade, and real estate sectors, grew by two percentage points per year. From 1990–2000, the added value of Shanghai’s service industry obtained an average annual growth of 13.8%, 1.6 percentage points higher than the growth of the city’s total output. Its proportion in GDP increased from 31.9% to 50.6%, representing almost two percentage points of annual improvement. This quantitative change triggered off a qualitative shift during 1998–2000. Added value of tertiary industry exceeded secondary industry by 1.2 percentage points in 1999, representing a leap in industrial structure. A second breakthrough in industrial restructuring came in 2000 with the output value of tertiary industry exceeding the sum of primary and secondary industries for the first time. The fourth stage: from the beginning of this century to today Shanghai’s tertiary industry entered a stage of steady development in the 21st century. Its proportion in GDP even declined in certain

History of Industries in Shanghai

35

Figure 1.8 The changing proportion of tertiary industry in Shanghai’s GDP (1999–2005) 52

%

50 48 46 44 42 40 1999

2000

2001

2002

2003

2004

2005

Source: Yearbooks of Shanghai Statistics for the years cited and the official website of Shanghai Statistics Bureau.

years (Figure 1.8) due in part to a weakened effect of land and financial development in Pudong. With a downward trend of the stock market and a tightened control on land approval and leasing, the industries that propelled Shanghai’s economy toward high growth entered a period of steady growth. In spite of these, the added value of Shanghai’s service industry reached RMB 302.711 billion in 2003, still ranking high among China’s top major cities. The big market system, centered on such factor markets as capital, currency, intellectual property rights, and human resources, obtained growth and improvement. The city’s clustering and regional economic influence further enhanced its capability to serve the whole country. By 2004, through internal adjustments, the proportion of the service industry in GDP dropped to 47.9% (Table 1.7). In the Eleventh Five-Year Plan, the productive service industry will be the focus of Shanghai’s industrial development. The plan also identified six key sectors for future development in Shanghai’s service industry: finance and insurance, business services, logistics, research and development, creative design, and occupational education.

36

SHANGHAI INDUSTRIES Table 1.7

Development of Shanghai’s tertiary industry in 2004 Employees (10,000)

Transport, warehousing, and postal services Real estate Wholesale and retailing Accommodation and catering Finance Others

Total asset (RMB 100 mil.)

Total profit (RMB 100 mil.)

47.7

3,411.3

245.4

33.2

13,097.7

422.7

146.6

8469.7

462.1

28.7

522.7

13.8

13.5186

31,645.6

299.5

199.1

15,832.1

633.2

Source: Based on the results of Shanghai’s first economic survey published by Shanghai Statistics Bureau.

3. Shift of Focus in Industrial Development Viewed from a historical perspective, Shanghai’s industries underwent numerous development stages, prioritizing heavy industry before 1990, speeding up the service industry during the 1990s, and shifting to a joint development of advanced manufacturing and the modern service industry in the 21st century. It is a process of continual exploration indispensable to the industrial development of a modern cosmopolis.

3.1 The Stage of Prioritizing Heavy and Chemical Industries (Before the 1990s) Heavy and chemical industries generally refer to the manufacturing of means of production, including such sectors as energy, machinery manufacturing, electronics, chemicals, metallurgy, and building materials. In the course of industrialization, internal industrial structure normally undergoes three stages: heavy industrialization, deep processing, and technological intensification. In the late 1940s, light and textile industries were the dominant industrial sectors with light industry taking up 88.2% of the city’s gross industrial output value and heavy industry only 11.8%. Beginning from the First Five-Year Plan, Shanghai focused its industrial investment on heavy industry. By 1965, Shanghai had evolved from a city with light and textile

History of Industries in Shanghai Table 1.8

37

Shanghai’s outputs by industries in the 1990s Primary

Secondary

Tertiary

1990

4.3

63.8

31.9

1995

2.5

57.3

40.2

1996

2.5

54.5

43.3

1997

2.3

52.2

45.5

1998

2.1

50.1

47.8

1996–1998

2.3

52.26

45.5

Source: Yang, Gongpu, et al, Industrial Structure: Shanghai’s Choice and Optimization, Shanghai: The Publishing House of Shanghai University of Finance and Economics, 2001.

industries as the mainstay, into a comprehensive industrial base, with a good mixture of light and heavy industries. After opening-up and reform were initiated, and before 1992, Shanghai gave priority to secondary industry, resulting in a constantly accelerating growth rate. Structurally the inclination of investment toward heavy and chemical industries led to a bigger market share for these industries. Shanghai’s industrialization, as reflected in the industrial sector’s proportion of GDP, had reached the middle and late stages of industrialization by the end of the 1990s (Table 1.8). Shanghai completed its heavy industrialization centered on raw materials before the 1990s. After that, the structural upgrading of Shanghai’s industries shifted toward deep processing. Throughout the 1990s, Shanghai’s industries reentered a fast growth period, but its growth showed a trend of deceleration (Figure 1.9).

3.2 The Period of Speeding up the Services (1990s) Currently, almost all metropolises in the world have a strong tertiary industry, which accounts for an average 80% of their GDP and has such prominent features as being light, service-oriented, and internationalized. Along with the adjustment of industrial structure, Shanghai’s secondary industry found its proportion decreasing constantly from 75.24% in 1981 to 47.42% in 2002 while the proportion of tertiary industry experienced a steady rise. In the

38

SHANGHAI INDUSTRIES Figure 1.9

Shanghai’s industrial development (1991–1999)

RMB 100 mil. 7,000

%

6,000

25 20

5,000 4,000

15

3,000

10

2,000 5

1,000 0

1991 1992 1993 1994 1995 1996 1997 1998 1999

Index of gross industrial ouput value

0

Growth rate

Source: Data from Yearbooks of Shanghai Statistics for the years cited.

1990s, Shanghai’s economy underwent rapid growth, resulting in a continuous improvement in the service industry (Figure 1.10). In December 1992, Shanghai adjusted its order of priority in industrial development from “secondary, tertiary, and primary” to “tertiary, Figure 1.10

60

%

The changing proportion of the value added of Shanghai’s tertiary industry in GDP during the 1990s

50 40 30 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Yearbook of Shanghai Statistics (2000)

History of Industries in Shanghai

39

secondary, and primary.” Moreover, such sectors as finance, logistics, trade, real estate, tourism, and information services, gradually grew into the mainstay of Shanghai’s service industry. During the Eighth Five-Year Plan, Shanghai focused on fostering a big modern market for the development of its service industry, and made more effort to reform its investment structure. It also gave priority to the pillar industries, and quickened the pace of infrastructure development. Amongst its pillar industries, finance and insurance, real estate, transportation, information, trade, and distribution all witnessed rapid development. During the Ninth Five-Year Plan period, Shanghai persistently adhered to the concept of “finance and insurance as the mainstay, trade as the pioneer, and transportation, postal, and telecommunications as the foundation” in promoting the all-round development of its tertiary industry. A significant feature of this period was the surge of the real estate sector, with its contribution to the total added value of tertiary industry jumping from 0.5% in 1985 to 24.7% in 1995 (Table 1.9). By 2000, Shanghai’s strategic thinking for the development of its service industry had crystallized to include the following aspects: (1) Informatization should be used as the platform for infrastructure development; (2) Finance and logistics should be the main sectors in driving interactive development; (3) Clustered zones should become the breakthrough point for accommodating the service industry; (4) Large service enterprise groups should Table 1.9 Structural changes of the main sectors in Shanghai’s tertiary industry (Unit: %) 1978

1980

1990

1996

100

100

100

100

100

Transportation, postal services, communication, & warehousing

23.72

23.52

25.89

16.37

13.86

Wholesale, retailing, & catering

45.61

48.14

21.49

25.33

23.38

Finance & insurance

13.83

11.90

29.47

27.87

29.06

Real estate

0.53

0.55

1.56

9.96

10.52

Social services

5.72

5.45

0.14

7.70

9.10

Tertiary Industry

Source: Yearbooks of Shanghai Statistics for 1996–1999.

1998

40

SHANGHAI INDUSTRIES

be the leaders in enhancing the industry’s competitiveness; and (5) Professionals (human capital) should be mobilized in developing the core advantages of Shanghai’s service industry.

3.3 The Period of Common Development for Advanced Manufacturing and Modern Service Industry (the early 21st Century) The beginning of the 21st century saw the simultaneous development of Shanghai’s advanced manufacturing and service industry. While persisting in the integrative development of tertiary, secondary, and primary industries, Shanghai has prioritized the service industry and advanced manufacturing. The proportion of Shanghai’s service industry in GDP in terms of added value surpassed that of secondary industry for the first time in 1999, and this proportion exceeded 50% between 2000 and 2003. The development of the manufacturing industry boosted the rapid growth of Shanghai’s economy and paved the way for the further development of the service industry. To develop the advanced manufacturing industry during the Tenth Five-Year Plan at the beginning of the 21st century, six new pillar industries were defined: electronic information equipment, automobiles, petrochemicals and refined chemicals, fine steel, power station and large-scale packaged equipment, and modern biomedicine. The manufacturing industry continued to operate well (Figure 1.11) after its output value broke the record of RMB one trillion. In recent years, the manufacturing industry has been the main driver of Shanghai’s economic growth in terms of both absolute figures and total contribution rate. The service industry represents an inevitable trend of modern economic development. Figures from around the world as well as from China indicate that as people’s incomes increase, the demand for service products outstrips that for manufactured products. Worldwide tendencies in industrial development show that servicecentered sectors form the mainstay of the industrial structure in developed countries, where both the added value and the number of employees in the service industry make up 70% or more of the market. The service industry has become an important benchmark for

History of Industries in Shanghai Figure 1.11

41

Shanghai’s manufacturing output value and growth rate (2001–2004)

RMB 100 mil. 16,000

% 1 0.9

14,000

0.8

12,000

0.7

10,000

0.6

8,000

0.5

6,000

0.4 0.3

4,000

0.2

2,000

0.1

0

0 2001

2002

2003

2004

Gross industrial output value Gross output value of manufacturing (above the designated scale) Growth rate of manufacturing Source: Yearbook of Shanghai Statistics for the years cited.

measuring the overall industrial development and competitiveness of a country, region, or city. Shanghai is currently at the late stage of industrialization, moving toward post-industrialization. The sectoral structure of its service industry shows a clustering trend, with finance, logistics, business and trade, real estate, tourism, and information services growing into six pillar sectors. In addition, consumer service sectors, such as education, healthcare, and entertainment, have also made considerable progress. According to the Outline for Boosting Shanghai’s Modern Service Industry, Shanghai’s service industry must vigorously develop the financial sector through resource clustering and financial innovation, actively develop the cultural service industry by seizing opportunities offered by pilot reform projects, speed up modern logistics and shipping services by expanding and opening air and sea ports, integrate convention, exhibition, and tourism by taking advantage of the 2010 World

42

SHANGHAI INDUSTRIES

Expo; and foster and expand information services by implementing urban informatization. Shanghai’s service industry should be marketoriented and specialized while striving to upgrade its quality. In the long run, it is inevitable that an industrial structure will take shape in Shanghai that is centered on the service industry. Shanghai has formulated the following guidelines for the development of its manufacturing industry in the next five years. The city will upgrade its manufacturing industry through new technologies, equipment, and techniques based on enhanced innovation capability. The development of industrial clusters will also be boosted. For the service industry, Shanghai will take informatization as the base, finance, logistics, and culture as the focus, service industry clusters as the breakthrough point, and large service enterprise groups as the vehicle. The city will work hard to pool top-notch talents, strengthen comprehensive integration, and undertake international service outsourcing in order to improve the size and level of the service industry. Since the beginning of the 21st century, the degree of mutual reliance has increasingly intensified between the manufacturing and service industries. Shanghai’s service industry will serve as the gateway for improving its urban functions while its fast growing manufacturing industry will create a tremendous demand for its service industry. A developed service industry will, in turn, provide more solid support for the development of the manufacturing industry. Placing equal emphasis on advanced manufacturing and service industries will become the general policy for Shanghai’s future development.

CHAPTER

2

Development of Shanghai’s Advanced Manufacturing Industry

1. Status Quo and Features

S

hanghai’s manufacturing industry has long played a supporting and driving role in the city’s economy. Although there is a decrease in the ranking of its total output in China, its key industries enjoy a number of advantages in scale, industrial structure, labor productivity, comprehensive matching capacity, talent pool, and resource allocation. Firstly, its well-developed iron and steel, automobile, and petrochemical industries are obviously more competitive in China. Secondly, Shanghai enjoys a full-range industrial chain in manufacturing, which is unique, even amongst the world’s major industrial cities. Thirdly, industry in Shanghai has a balanced structure, with an appropriate heavy-to-light industry ratio and suitable shares between primary, secondary and tertiary industries. Fourthly, Shanghai ranks top in China, in terms of labor productivity and profit. Fifthly, the overall level of service in Shanghai’s manufacturing industry ranks amongst the best in China.

1.1 Pillar Industries In keeping with the economic climate, the Shanghai municipal government selected its pillar industries for the Tenth Five-Year Plan period as: electronic information equipment manufacturing, automobiles, petrochemical and fine chemical, top-quality steel, power station equipment and large packaged equipment, and modern biomedicine.

44

SHANGHAI INDUSTRIES Table 2.1 Investment in the automobile manufacturing industry (2003–2005) (Unit: RMB 100 million) Investment

Finished vehicles

Auto parts

2003

44.04

19.59

24.18

2004

65.65

33.66

31.11

2005

81.59

33.23

44.87

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Automobile manufacturing industry Since the 1990s, automobile manufacturing has spearheaded Shanghai’s industrial development. A stupendous boom in the domestic car market in 2002 further saw investment in Shanghai’s automobile industry grow rapidly (see Table 2.1). After more than ten years of development, Shanghai has become the home of Volkswagen, GM, and SMA, as well as of some auto parts manufacturing companies. The automobile product range has also developed, from past dominance by the ordinary Santana, to a more diversified series today, including the Buick Regal, Buick Excelle, Passat, and SMA Marindo. During the Tenth Five-Year Plan period, Shanghai’s annual automobile production increased from 290,000 vehicles in 2001 to 490,000 vehicles in 2005, and the accumulative total for this period amounted to more than 2.32 million vehicles. The boom in the industry lasted from 2001 to 2003, and then underwent a backward slide during 2004–2005. When viewed from an overall perspective, the development of Shanghai’s automobile industry has the following features: •

On the whole, the automobile manufacturing industry shows a downward trend. In 2005, the output value was RMB 102.6 billion, down 8% from 2004. Industrial product sales were RMB 1,000.9 billion, down 14%. The main business income was RMB 116.8 billion, a 6% decrease. Total profit earned was RMB 9.8 billion, a drop of 47%, which was the biggest decrease, among the six industries prioritized for development (see Table 2.2).

Development of Shanghai’s Advanced Manufacturing Industry

45

Table 2.2 Gross industrial output value and industrial product sales of Shanghai’s automobile industry in 2005 Output (RMB 100 mil.) Total of auto industry

Growth (%)

Industrial product sales (RMB 100 mil.)

Growth (%)

1026.48

–8.3

1,009.35

–14.0

Finished vehicles

589.96

–17.2

579.91

–20.1

Auto parts

423.12

5.6

416.71

–3.1

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Figure 2.1

Proportion of Shanghai’s automobile industry in gross industrial output value

% 14

11

8

5

2001

2002

2003

2004

2005

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

In the past two years, the proportion of the automobile manufacturing industry in the city’s total industrial output showed a downward trend year by year. In 2005, the industry accounted for only 6.5% of Shanghai’s total industrial output, the lowest during the Tenth Five-Year Plan period (see Figure 2.1).

46

SHANGHAI INDUSTRIES

•

•

•

•

While there was negative growth in automobile production and sales for two consecutive years, there were obvious signs of recovery. In 2005, neither production nor sales achieved any growth, and Shanghai’s automobile industry declined for two years. The production to sales ratio was 98% and the ratio of profit to sales was about 8%. Car sales had a general trend of first going down and then recovering. Monthly production and sales dropped by double digits in the first half of the year, and then improved in the second half (except for November). The automobile retail and maintenance industry is clearly on the upbeat. In 2005, Shanghai sold 90,000 vehicles, a close to 2% increase from 2004. Car sales accounted for 80,000 units of this figure, up 0.3%. In 2005, Shanghai’s automobile maintenance industry serviced 4.9 million vehicles and tested 250,000, earning an operating income of RMB 5 billion. Apart from the traditional comprehensive maintenance, new developments had emerged such as designated maintenance, auto care and decoration, which were provided by fast service and chain shops. Car production currently enjoys an important position in China. Cars are the main product of Shanghai’s automobile manufacturing industry. Car production and sales respectively contribute 99.2% and 99.1% of the totals in Shanghai’s automobile industry. At present, Shanghai-made cars appear in a product series, with medium cars as the main part, and luxury and common cars as the supplement (see Figure 2.2). In 2005, Shanghai produced 480,000 cars and ranked number one in China, Guangdong produced 400,000 cars, and took second place, followed by other provinces and municipalities. However, Shanghai’s share of China’s car market showed a year-by-year decreasing trend during the Tenth Five-Year Plan period. The export of automobile products is rapidly increasing. In 2005, Shanghai’s automobile industry achieved an export delivery value of RMB 9.4 billion, up 34% from 2004. Of this figure, the manufacture of finished vehicles reached RMB 2.8 billion, or up 30%, while the auto parts industry attained RMB 6.5 billion, up 36%.

Development of Shanghai’s Advanced Manufacturing Industry Figure 2.2

47

Composition of Shanghai’s car production in 2005 10.2%

3.4%

86.3% Luxury

Medium

Common

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Top-quality steel industry During the Tenth Five-Year Plan period, Shanghai’s top-quality steel industry held back from the blind expansion seen elsewhere in China. Instead, it concentrated its efforts on improving the product mix. As a result, this industry grew 13% annually during the period, and accounted for 8.5 of the city’s total industrial output. In 2005, the top-quality steel industry ranked number four in Shanghai’s six pillar industries in terms of total output, and its total profit accounted for nearly 20% of Shanghai’s industrial total. Among the six pillar industries, the top-quality steel industry has climbed from third place in 2001 to first in 2005 in terms of contribution to profit. Its industrial output was RMB 133.98 billion, up 15%, accounting for 8.5% of Shanghai’s total industrial output. The main business income was RMB 148.89 billion, up 38.7%, and accounting for 9% of Shanghai’s total business income. Production to sales ratio was 98.8%, profit RMB 17.83 billion, up 7%, and accounting for 19%, and tax payment was RMB 7.19 billion, accounting for 11.9%.

48

SHANGHAI INDUSTRIES Table 2.3 Comparison of China’s main steel producing provinces or municipalities Main business Output income Profit Production (RMB 100 (RMB 100 Proportion (RMB 100 Proportion to sales mil.) mil.) (%) mil.) (%) ratio (%)

National total

19,789.67

19,958.88

100

996.42

100

98.1

Hebei

3,087.75

3,058.87

15.3

162.22

16.3

98.1

Jiangsu

2,922.78

2,904.62

14.6

131.22

13.2

98.2

Liaoning

1,666.33

1,785.56

8.9

137.77

13.8

97.0

Shandong

1,609.53

1,678.08

8.4

70.34

7.1

98.2

Shanghai

1,339.84

1,488.87

7.5

178.33

17.9

98.2

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Shanghai’s steel industry ranks number five in China in terms of output value and main business income, but it has the strongest profitability, and its total profit ranks first in China. Its profit ratio of main business income is 12%, much higher than the national average of 5%. Its production to sales ratio is also the highest among the five provinces and municipalities (see Table 2.3). During the Tenth Five-Year Plan period, the top-quality steel industry of Shanghai focused on upgrading the quality of its products, and implemented a top brand strategy. A series of adjustments and revamps were conducted to eliminate outdated production techniques and facilities. A number of high-quality steel production lines were installed by applying state-of-the-art technology. The product mix was improved and optimized. Great progress was made in building R&D bases for new processes, new equipment, and new products. All these factors changed Shanghai into China’s most competitive production base for top-quality steel.

Development of Shanghai’s Advanced Manufacturing Industry

Insight 2-1 Baosteel—A Flagship Enterprise of Shanghai’s Iron and Steel Industry Baosteel is the leader of Shanghai’s iron and steel industry. It is the largest, most modernized, and most competitive iron and steel complex in China. The company’s first phase construction project began on December 23, 1978, and was completed and went into production on September 15, 1985. Its second phase project went into operation in June 1991, and the third phase project was completed by the end of 2000. On February 3, 2000, the company floated its shares on China’s stock market on December 12 of the same year. Baosteel has been one of the world’s top 500 companies for two consecutive years. In the fields of general-purpose steel, stainless steel, and specialty steel, Baosteel has become a major steel production base, covering steel for automobiles, household electric appliances, oil exploitation and piping, novel buildings, as well as electrical and special metal materials. In 2005, it achieved an output of RMB 117.5 billion, accounting for 88% of Shanghai’s top-quality steel industry, a main business income of RMB 132 billion, accounting for 89%, and paid taxes amounting to RMB 6.9 billion, accounting for 96%. Its production volume made up more than 95% of the city’s total. With its comprehensive advantages in credibility, talent, innovation, management, and technology, Baosteel was ranked among the top three of the most competitive steel producers globally according to Guide to the World Steel Industry, and was believed by this guide to be the most promising steel enterprise.

49

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SHANGHAI INDUSTRIES

Baosteel specializes in producing high-tech and high-valueadded steel products. The company has become China’s main supplier of steel products for the automobile, household appliance, oil and natural gas exploration, and the pressure vessel and container industries. Meanwhile, its products are exported to over 40 countries and regions, such as Japan, Korea, Europe, and the United States. The company has adopted an advanced quality control system. Its main products have passed the ISO9001 quality certification, the certification of API and JIS, and the QS9000 certification by GM, Ford, and Chrysler. In addition, its products have also been recognized by ship classification societies in seven countries: China, France, the United States, the United Kingdom, Germany, Norway, and Italy. The company possesses strong R&D capabilities for developing new technologies, products, processes, and equipment. This will ensure vigorous future development for the company. Baosteel devotes a great deal of attention to environmental protection in its pursuit of sustainable development. It is the first Chinese steel producer to gain the ISO 14001 environmental certification.

Equipment manufacturing industry Shanghai’s equipment manufacturing industry is composed of seven sectors or 33 sub-sectors. The seven sectors are: metal products, general-purpose equipment, specialized equipment, transportation equipment, electrical equipment, communication equipment, and computers and instruments. Shanghai’s equipment manufacturing industry focuses on ten key industries: power generation, power transmission and distribution, track transportation, microelectronics, heavy machinery, CNC machine tools, mechatronics, instrument and

Development of Shanghai’s Advanced Manufacturing Industry

51

control equipment, nuclear power, coal liquefaction, and advanced coal mining facilities. During the Tenth Five-Year Plan period, there was a nationwide electricity shortage, due to accelerated economic growth. This triggered off a series of power station projects in various parts of the country, which provided opportunities for Shanghai’s packaged equipment manufacturing industry. This industry, which includes ship and power station equipment manufacturing, is a leading industry in China, and has enjoyed the most stable development in recent years. Although the rising price of steel, its main raw material, led to a considerable increase in cost, the industry still showed continual growth, and was Shanghai’s second largest profit maker. In 2005, Shanghai’s packaged equipment manufacturing industry achieved an industrial output of RMB 153.263 billion, up 21.2% over the previous year, representing an increase 2.3 times over that in 2000. Its average annual growth was 26.9% during the Tenth FiveYear Plan period. It gained a main business income of RMB 154.89 billion, up 24.3% from the previous year; it earned a profit of RMB 11.56 billion, up 36.8%; its tax payment reached RMB 4.077 billion, an increase of 8.8%. Within the industry, boiler equipment, lifting and transportation equipment, general-purpose instruments, specialized equipment for electronic and electrical machines, ship manufacturing, and electrical motors, each maintained over 20% in annual growth in their industrial output value. Within the equipment manufacturing industry, Shanghai prioritized the development of such sectors as power-generating equipment, power transmission and distribution equipment, track transportation equipment, and microelectronic equipment. In 2005, Shanghai’s equipment manufacturing industry experienced stable and rapid production growth. The total production value reached RMB 740.91 billion, an 18% increase over the previous year, sales were RMB 764.4 billion, up almost 14%. Its contribution to the city’s total industrial output rose to 47%. Despite a slight decline from the previous year, the industry has a clear leading advantage. There was a decline in profit. The industry was impacted by the fierce competition and profit slip of the domestic automobile industry as well as a weakening demand in international electronic

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equipment. The 2005 full year profit was RMB 37.6 billion, down 15% from the previous year. This figure included a sharp decrease for transportation equipment, communication equipment, computer, and other electronics. However, a high production to sales ratio was maintained. In 2005, Shanghai’s equipment manufacturing industry achieved product sales of RMB 726.7 billion. With stable growth in market demand, its production to sales ratio was 98%. At the same time, there was a robust export growth. In 2005, the industry achieved an export volume of RMB 334.4 billion, up by nearly 43% from the previous year. The export delivery value accounted for up to 46% of the industry’s sales. Investments accelerated in the industry. In 2005, Shanghai’s equipment manufacturing industry made a total investment of RMB 132.6 billion, up 49% from the previous year. Of this figure, electronic equipment manufacturing (such as communication, computer, etc.), and transportation equipment manufacturing accounted for 46% and 40% respectively, while instruments and office equipment only had a share of 0.4%. Investment was thus fairly centralized, with an unbalanced structure (see Table 2.4) Table 2.4 Investments in various sectors of Shanghai’s equipment manufacturing industry in 2005 (Unit: RMB 100 mil.) Investment

Percentage

1,325.59

100

Metal products

17.90

1.4

General-purpose equipment

61.83

4.7

Specialized equipment

66.44

5.0

526.55

39.7

39.51

3.0

608.06

45.9

5.30

0.04

Total

Transportation Electrical equipment Communication and computers Instruments

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Development of Shanghai’s Advanced Manufacturing Industry

53

In 2005, the output of Shanghai’s equipment manufacturing industry took third place in China behind that of Guangdong and Jiangsu. However, Shanghai continued to be a technical leader in high-end fields, including packaged power generation equipment, automobiles, ships, medium- and high-grade machine tools, printing presses, and large petrochemical equipment. In 2005, Shanghai’s equipment manufacturing industry had a total of 227 R&D institutions employing nearly 50,000 researchers. The expenditure on technology development was RMB 18.9 billion, almost two times that of 2000. Of this figure, R&D, at the core of science and technology activities, accounted for around RMB 8.6 billion, up by 3.3 times over 2000. Insight 2-2 Shanghai Electric—China’s Largest Equipment Manufacturer Shanghai Electric Group Co. Ltd. (hereinafter referred to as Shanghai Electric) is the largest equipment manufacturer in China with a history going back to 1880. The group was restructured in March 2004 before floating its shares as H shares on Hong Kong’s stock exchange in April 2005. As the largest corporation engaged in design, manufacturing, and sales of power generation equipment and heavy machinery, Shanghai Electric has a total asset worth more than RMB 70 billion. It has six listed companies and 134 joint ventures. Its products include: packaged power station equipment, packaged power transmission and distribution equipment, industrial automation equipment, CNC machine tools, equipment for information industry, printing and packaging machines, light industry machinery, textile machinery, track transportation equipment, refrigeration and air-conditioning equipment, environmental machinery, general and petrochemical equipment, engineering power machines, heavy mining machines, basic machine parts, modern agricultural machinery, elevators, household appliances, and other products.

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The development of Shanghai Electric is a miniature version of China’s heavy industry development. By upholding independent innovation, the group has maintained doubledigit growth for over 20 years, and its main products have long enjoyed a leading position in China’s market. In addition, Shanghai Electric has also established an international presence by building strategic international partnerships and continuously raising its technical standards. With innovations in its systems and facilities, the group has focused on its core businesses, namely, equipment for power generation, transmission and distribution, mechatronics, transportation, environmental facilities, and heavy industry. The group has also become more competitive in packaged equipment supply, project contracting, and modern integrated services. The group has its own financial company, information center, research center, and 19 technology centers that specialize in developing automation and informatization products for the whole corporation. As the leader of Shanghai’s equipment manufacturing industry, Shanghai Electric has scored remarkable achievements in research and development. In 2005, the group invested more than 4% of its sales in R&D. More than 50% of its products that year were covered by its own intellectual property rights, and were dominant in the product mix. Besides these successes, the group has also established its own brands. It has established a central research institute to carry out critical research projects and technical missions. Over the years, Shanghai Electric has explored new ways to establish joint ventures for mutual benefit with world-famous companies such as Carrier, Siemens, ABB, Schneider, Alstom, Alcatel, Morgan, Mitsubishi, Panasonic, and Toshiba. Such alliances have significantly enhanced the group’s competitive edge both at home and abroad.

Development of Shanghai’s Advanced Manufacturing Industry

55

Electronic information product manufacturing industry Shanghai’s electronic information product manufacturing industry made rapid development during the Tenth Five-Year Plan period, with an average annual growth of 34%. Its contribution to the six prioritized industries reached 40.3%, and its proportion in Shanghai’s total industrial output rose from 12.7% in 2000 to 25.5% in 2005. It is the fastest growing industry in Shanghai, and has become the largest contributor to Shanghai’s total industrial output. In 2005, the industry achieved an industrial output of RMB 402.895 billion, accounting for 25.5% of Shanghai’s total. Its growth stood at 25.9%, 12 percentage points higher than the overall industrial increase for the city, and its contribution to GDP was almost 9%. It gained a main business income of RMB 410.595 billion, up 21.8%. Figure 2.3

Growth margin of the industrial output of Shanghai’s electronic information product manufacturing industry and its percentage in the city’s total

% 50 45 40 35 30 25 20 15 10 5 0 2001

2002

2003

percentage

2004

2005

growth margin

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

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SHANGHAI INDUSTRIES Table 2.5 Shanghai’s shares of some major information products in China (%) Product

2001

2002

2003

2004

2005

5.4

5.1

23.8

16.3

26.9

Program-controlled switchboards

24.3

20.9

25.5

24.3

28.9

Semiconductor integrated circuits

35.4

35.3

28.6

18.8

25.5

Large integrated circuits

48.1

45.0

40.9

28.1

38.9

Microcomputers

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

To be specific, Shanghai’s electronic information product manufacturing industry exhibits the following features in development: •

•

•

Development of integrated circuits is at the core, and is the key for the development of an information technology industry cluster. Shanghai has become China’s largest and most advanced center for integrated circuit design, manufacturing, and packaging. In 2005, integrated circuit manufacturing achieved a main business income of RMB 25 billion, up by 4 times over that of 2000 (see Table 2.7). In 2005, the main business income of the electronic computer manufacturing sector reached RMB 187.8 billion, increasing 13.7 times from the end of the Ninth Five-Year Plan period. A total of 21.76 million microcomputers were made, increasing 51 times from the end of the Ninth Five-Year Plan period. Quanta Group, the world’s largest notebook computer maker, invested in Songjiang Export and Processing Zone, and set up its Quanta Shanghai Manufacturing City (QSMC), with Dafeng (Shanghai) Computer Co. Ltd. as its spearhead. In 2005, while growth in Shanghai’s electronic information product manufacturing was slowing down, the communication equipment manufacturing sector achieved a main business income of RMB 62.2 billion, up 65% over the previous year, contributing to 33% of growth in the electronic information product manufacturing industry, and increasing 1.4 times over 2000. Cell phone production was 19.39 million units, up by 1.9 times of the 2000 volume.

250.05 311.90 24.60

Integrated circuits

Electronic machinery products

Specialized electronic materials

0.6

7.6

6.1

11.7

9.3

2.0

21.21

244.19

560.13

914.87

381.59

89.89

70.18

183.91

579.51

10.71

417.54

2,913.60

Total asset

0.7

8.4

19.2

31.4

13.1

3.1

2.4

6.3

19.9

0.4

14.3

100

Proportion (%)

4.51

20.75

1.13

–3.24

31.49

6.92

8.91

1.77

21.76

0.08

7.61

100.56

Total profit

4.5

20.6

1.1

–3.2

31.3

6.9

8.9

1.8

21.6

0.1

7.6

100

Proportion (%)

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

479.61

Electronic devices

80.84 380.35

Electronic components

Specialized electronic equipment

1.9

5.7

235.52 76.18

45.7

0.4

15.2

100

Proportion (%)

1,878.12

16.55

Electronic measurement instruments

Home audio-visual equipment

Electronic computers

Radio & TV broadcasting equipment

622.28

4,105.95

Electronic information product manufacturing industry

Communication equipment

Sectors

Overview of Shanghai’s electronic information product manufacturing industry in 2005 (RMB 100 mil.) Main business income

Table 2.6

Development of Shanghai’s Advanced Manufacturing Industry 57

58

SHANGHAI INDUSTRIES Table 2.7

Shanghai’s integrated circuit production during the Tenth Five-Year Plan period (100 mil. pieces)

Semiconductor integrated circuits

Y-o-Y growth (%)

Large integrated circuits

Y-o-Y growth (%)

2001

22.53

—

10.70

—

2002

33.95

50.7

18.60

73.8

2003

39.73

17

21.94

18

2004

54.87

38.1

33.75

53.8

2005

67.70

23.4

38.19

13.2

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

•

Information product manufacturing was the first industry in China that was brought in line with international practices. With its advantages in geographical location and talent, Shanghai has attracted large volumes of overseas capital. In 2000, 90% of the main business income of Shanghai’s electronic information product manufacturing industry was generated by enterprises with investments from foreign countries and the regions of Hong Kong, Macao, and Taiwan. In 2005, this proportion increased by 3 percentage points. During the Tenth Five-Year Plan period, those enterprises with Hong Kong, Macao, and Taiwan investments increased rapidly, and their contribution to Shanghai’s electronic information product manufacturing industry rose from 13% to 25%.

Insight 2-3 SMIC—One of China’s Top Makers of Integrated Circuits Established in 2000, SMIC has its headquarters in Shanghai, China. It has three chip fabs, including one dedicated copper backend line. In May 2003, its Fab 1 was awarded the “Top Fab of the Year, 2003” by Semiconductor International, a leading publication in the semiconductor industry.

Development of Shanghai’s Advanced Manufacturing Industry

59

SMIC is one of the most advanced IC enterprises and the only enterprise capable of making 12-inch chips in China. It can also provide OEM services for chips of 0.35μm to 90 nm, and more advanced 8-inch and 12-inch IC manufacturing services. Currently, the company has a strong R&D team of more than 800 engineers, and it is continuously stepping up R&D investment to drive its products to the high end of the market. SMIC’s technology capabilities cover logic, mixed signal/RF, high-voltage circuits, system-on-chip, embedded and other memories, LCOS and CIS, among others. CMIC owes its rapid technological development and excellent fab management to a team of highly qualified and experienced engineers from North America, Europe, and Asia as well as a network of leading international technology and manufacturing partners. More than just a wafer OEM, SMIC provides its customers with a full set of value-added services that range from design, mask making, and IC manufacturing, to testing, while packaging and final testing services are offered through third-party suppliers. With strong internal offerings and collaboration with a global network design service, IP, standard cell library, and EDA providers, SMIC provides its customers with wideranging and highly flexible design support. To better serve its worldwide customers, SMIC has customer service and marketing offices in China, the United States, Europe, and Japan in addition to partners in Korea and Israel.

Petrochemical industry During the Tenth Five-Year Plan period, the petrochemical and fine chemical manufacturing industry further expanded its production scale and played a significant role in Shanghai’s industrial development. It has become Shanghai’s second largest industrial sector. The

60

SHANGHAI INDUSTRIES Table 2.8 Summary of foreign-funded petrochemical and fine chemical enterprises in Shanghai during the Tenth Five-Year Plan period (RMB 100 mil.) Number enterprises

%

2001

266

32.3

2002

216

2003

249

2004 2005

Main business income

%

Total profit

%

Total asset

%

439.46

55.2

13.03

51.6

559.64

59.9

33.2

484.03

56.9

23.38

58.6

570.30

58.8

35.8

621.47

56.8

34.07

62.4

623.75

59.9

286

37.4

797.06

57.7

73.81

73.7

689.40

59.8

339

38.1

1,022.35

57.5

41.97

72.2

875.63

61.8

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

building of Shanghai Chemical Industrial Zone has attracted investment of global petrochemical giants, such as Bayer, BASF, and BP. At the initial stage in the construction of the zone (2000–2010), the average investment per square kilometer reached US$1.38 billion, three to four times that of other zones around China. The fixed-asset investment in Shanghai’s petrochemical and fine chemical industry will be concentrated in the zone upon its completion, which will optimize the investment distribution system and add more prestige to the zone’s high-quality projects. In 2005, the petrochemical and fine chemical manufacturing industry achieved an industrial output of RMB 178.399 billion, up 12.6% over 2004 and 69.5% over 2000, representing an annual average growth of 11.1% during the Tenth Five-Year Plan period. Major business income was RMB 177.905 billion, up 26.8% from the previous year, profit was RMB 5.813 billion, down 42.7%, and tax payment was RMB 6.776 billion, down 5.5%. The newly established chemical zone achieved an industrial output of RMB 14.99 billion, up 38.5 times from the previous year, and contributing 35.1% to the growth of the entire industry.

Development of Shanghai’s Advanced Manufacturing Industry

61

Figure 2.4

Output of Shanghai’s petrochemical and fine chemical manufacturing industry during the Tenth Five-Year Plan period

RMB 100 mil.

%

2,000 1,500 1,000 500 0

2001

2002

2003

Gross output value

2004

2005

16 14 12 10 8 6 4 2 0

YoY growth

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Figure 2.5 Total profit of Shanghai’s petrochemical and fine chemical manufacturing industry during the Tenth Five-Year Plan period 100

%

50

0 2001

2002

2003

-50 YoY growth Source: Shanghai Municipal Economic Commission.

2004

2005

3,302.89

2,610.19

2,386.62

2,063.79

1,783.99

Zhejiang

Guangdong

Liaoning

Shanghai

7.2

8.4

9.6

10.6

13.4

14.9

1,779.04

2,118.40

2,332.54

2,648.99

3,269.26

3,667.99

15,816.23

24,581.91

7.2

8.6

9.5

10.8

13.3

14.9

64.3

100

%

58.13

–84.14

137.95

120.78

177.16

127.43

537.31

516.38

Total profit

11.3

—

26.7

23.4

34.3

24.7

104.1

100

%

67.66

71.92

120.83

88.68

129.69

113.26

592.05

1,018.11

Tax payment

6.6

7.1

11.9

8.7

12.7

11.1

58.2

100

%

1,417.73

1,117.99

1,443.27

1,767.76

1,924.31

2,459.77

10,130.83

16,948.99

Total asset

8.4

6.6

8.5

10.4

11.4

14.5

59.8

100

%

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

3,671.52

15,819.01

Total for the six

Shandong

100

64.1

24,695.85

National total

Jiangsu

%

Main business income

Main economic indicators of six provinces/municipalities in 2005 for their petrochemical and fine chemical manufacturing industry (RMB 100 mil.)

Industrial output

Province/ municipality

Table 2.9

62 SHANGHAI INDUSTRIES

Development of Shanghai’s Advanced Manufacturing Industry

63

1.2 Strategic Industries Strategic industries refer to industries bearing on a country’s national security, such as shipbuilding, offshore oil and gas exploration and production facilities, and aviation and aerospace industries. Aviation and aerospace manufacturing industry Shanghai’s civil aviation industry developed very slowly during the Tenth Five-Year Plan period. Its research and fabrication resources were not fully utilized, and no great breakthroughs were made in major projects. Moreover, the sales volume of aviation industrial products did not improve significantly, and the industry’s total sales revenue during the period was a mere RMB 980 million. However, Shanghai’s aerospace industry had won renown for the country and the city with such projects as missile-guided weapon systems, human space flights, Fengyun Meteorological Satellites, military remote sensing satellites, and carrier rockets. In addition, it had made good progress in mini-satellite technology, aeronautical machinery and electronics, and in the development and commercialization of remote sensing and information systems. In 2005, Shanghai’s aviation and aerospace industry developed rapidly. It achieved a gross industrial output of RMB 1.74 billion, up by 31.6% over 2004, a total asset worth RMB 3.03 billion, up 17%, a total profit of RMB 100 million, up 88.9%, and a sales income of RMB 1.64 billion, up 31.8% Shipbuilding industry During the Tenth Five-Year Plan period, the industry’s output improved from 741,000 deadweight tons in 2000 to 2.356 million deadweight tons by the end of the period, increasing 2.2 times with an average annual growth of 26% (see Figure 2.6). Metal ship building, auxiliary ship equipment manufacturing, and ship repair and breaking became the mainstay of Shanghai’s shipbuilding industry and contributed to 99% of its total output (see Figure 2.7). In 2005, the total industrial output of Shanghai’s shipbuilding industry reached RMB 24.16 billion, up about 24% from 2004, with an industrial sales output of RMB 23.95 billion, up 19% from

64

SHANGHAI INDUSTRIES Figure 2.6

Output and growth of Shanghai’s shipbuilding industry in the Tenth Five-Year Plan period %

RMB 100 mil.

300

50

250

40

200

30

150

20

100

10

50 0

0 2001

2002

2003

Gross output value

2004

2005

YoY growth

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Figure 2.7

Composition of gross output value of Shanghai’s shipbuilding industry in 2005 13%

1%

13%

73% Metal ship building Auxiliary ship equipment manufacturing Ship repair & breaking Others Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

Development of Shanghai’s Advanced Manufacturing Industry

65

2004. In 2005, the industry achieved a main business income of RMB 27.14 billion, up 39.3% from 2004, with a total profit of RMB 850 million, increasing 2.2 times that of the previous year. The industry also witnessed vigorous increase in exports. In 2005, it achieved an export delivery value of RMB 11.15 billion, up 55.8% over 2004. At the end of 2005, the whole industry had a total in-hand purchase order of 8.552 million deadweight tons, up 26% from the previous year. And 85.5% of the order was from outside China. Currently, Shanghai’s shipbuilding industry is number one in China in terms of productivity. In 2005, the industry contributed as much as 20.8% to China’s total shipbuilding industry. It achieved a main business income of RMB 27.144 billion, accounting for 24.5% of China’s total; its profit was RMB 845 million, which placed it third nationally. Shanghai’s shipbuilding industry leads the country both in terms of its total output and economic indicators. Shanghai’s shipbuilding industry has expanded its number of scientific research personnel and its funding for R&D in recent years. In 2005, the industry had a R&D team of 2,465 people, up 13.9% from the previous year, with an average annual growth of 3.4% in the Tenth Five-Year Plan period. R&D expenditure reached RMB 870 million, up 32.4% from the previous year, with an average annual growth of 36.6%. The increased investment in science and technology has clearly upgraded the industry’s technical capability. During the Tenth Five-Year Plan period, Shanghai’s shipbuilding industry developed and built a good number of high-tech and high added-value LNG ships, chemical ships, oil product ships, large and high-speed container ships, train ferries, large container ships, and large bulk carriers. The industry also adopted and applied leading technologies relating to the building of high-tech ships such as LNG ships, and key auxiliary products such as the 50,000 kW diesel engines.

66

SHANGHAI INDUSTRIES

Insight 2-4 Asset Restructuring of Shanghai’s Shipbuilding Industry In the Tenth Five-Year Plan period, Shanghai’s shipbuilding enterprises underwent a series of effective restructuring efforts in asset management and resource reallocation, thus forming a new development pattern. Jiangnan Shipyard and Qiuxin Shipyard were consolidated and restructured as the new Jiangnan Shipbuilding Group. Hudong Shipyard and Zhonghua Shipyard were combined into Hudong-Zhonghua Shipbuilding (Group) Co. Ltd. The more than 140-year old Shanghai Shipyard was restructured and merged with Jiangsu Chengxi Ship Repair and Building Yard to form Shanghai Shipyard and Chengxi Shipyard Co. Ltd. Waigaoqiao Shipbuilding Co. Ltd was formed and went into operation in 2002. In 2005, these four major shipbuilding companies attained an industrial output of RMB 16.9 billion, growing 20.7% from the previous year, and accounting for 71.8% of Shanghai’s total shipbuilding industry, with a profit of RMB 360 million, accounting for 88% of the city’s total. After the restructuring, these four companies became the chief driver of Shanghai’s shipbuilding industry, and represent the development trend for the entire industry. Shanghai’s shipbuilding industry has become an important part of the global shipbuilding market, and an important pillar of Shanghai’s foreign trade. Ships built in Shanghai’s four shipbuilding bases have sailed to nearly 80 countries and regions across five continents, including such countries as Greece, Norway, the United States, the United Kingdom, and major global shipbuilding countries as Japan, Korea, Germany, Denmark, Poland, and Italy.

Development of Shanghai’s Advanced Manufacturing Industry

Shanghai’s shipbuilding industry has become an important part of the global shipbuilding market, and an important pillar of Shanghai’s foreign trade. Ships built in Shanghai’s four shipbuilding bases have sailed to nearly 80 countries and regions across five continents, including such countries as Greece, Norway, the United States, the United Kingdom, and major global shipbuilding countries as Japan, Korea, Germany, Denmark, Poland, and Italy. Shanghai’s four shipbuilding bases are advancing together toward the objective of becoming the “flagship” of China’s shipbuilding industry. Waigaoqiao Shipbuilding Co. Ltd completed its Phase One project during the Tenth Five-Year Plan period, and started its Phase Two during the Eleventh Five-Year Plan period to build large ships. The HudongZhonghua Shipbuilding Group completed technical upgrading during the Tenth Five-Year Plan period, and is currently developing a large high-tech shipbuilding base. The Jiangnan Shipbuilding Group plans to start its Phase One construction during the Eleventh Five-Year Plan period. The objective is to build China’s largest and most advanced comprehensive shipbuilding base for the 21st century. Shanghai Shipyard completed Phase One of its Chongming project during the Tenth Five-Year Plan period, and will start Phase Two during the Eleventh Five-Year Plan period. At the same time, Shanghai’s shipbuilders, through their overseas offices, will further strengthen and improve their overseas marketing and service system. They will also set up R&D institutions in other countries, and even establish an overseas presence in ship repair and shipbuilding, through shareholding, acquisition or the building of new facilities; these activities should gain them a fair share of the international shipbuilding market.

67

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2. Distribution of Shanghai’s Advanced Manufacturing Industry After over ten years of adjustment, a new industry structure has been formed in Shanghai, with key industry bases serving as spearheads, district or county-level industries as the main body, and industrial parks or zones as important carriers. Industrial distribution has been reorganized in order to become more efficient. In 2005, the clustering of enterprises in Shanghai’s “one+ three+nine”1 parks and zones began to take effect. Over 80% of the main industries were grouped together in industrial parks or zones at or above municipal level. Within these parks or zones, a new development pattern emerged, featuring a few key clusters at the core. For instance, three clusters were formed in Minhang Development Zone: electromechanical, pharmaceutical and medical treatment, and food and beverage industries. Clusters of electronic information, new materials, biomedicine, aviation and space industries occupied Caohejing New Technology Development Zone. Jinqiao Processing Zone concentrated electronic information, automobiles and parts, and modern household appliance industries. In Songjiang, the electronic information industry grew rapidly, with computer manufacturing as the mainstay. In 2005, industrial output from state- and municipality-level industrial parks or zones hit RMB 691.6 billion, up 43.8% over the previous year. During the Tenth Five-Year period, the industrial output value of Shanghai’s six pillar industries (electronic information equipment, automobile, petrochemical and fine chemicals, top-quality steel, equipment manufacturing and shipbuilding) accounted for 63.4% of the municipality’s total compared to 48.6% at the end of the Ninth Five-Year Plan period. Hi-tech industry enjoyed rapid growth and gradually became one of Shanghai’s main industries. With an “One” refers to Pudong New area; “three” refers to three state-level development zones: Caohejing New Technology Development Zone, Minhang Economic and Technological Development Zone, and Songjiang Export Processing Zone; “nine” refers to nine municipal-level industrial parks: Xinzhuang, Kangqiao, Jiading, Fengpu, Songjiang, Qingpu, Jinshanzui, Baoshan, and Chongming.

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Figure 2.8 Distribution of Shanghai’s six advanced manufacturing industries BAOSHAN DISTRICT

Automobiles

JIADING DISTRICT

Steel

Shipbuilding

CITY CENTER

Pudong New Area Microelectronics

QINGPU DISTRICT

SONGJIANG DISTRICT

MINHANG DISTRICT

NANHUI DISTRICT

FENGXIAN DISTRICT

Equipment

JINSHAN DISTRICT Petrochemical & fine chemical

Source: China Industry Atlas — Shanghai (2004–2005), Beijing: China Social Science and Documentation Press, 2005.

annual growth of 56%, the electronic information industry became the number one pillar industry and the driver of the city’s output growth. Basic industries such as petrochemicals, and iron and steel, quickly underwent major upgrading and restructuring that brought them in line with the high-tech industry. The Tenth Five-Year Plan period saw a continued large-scale adjustment of Shanghai’s industrial structure and a further extension of its industrial area from 600 square kilometers to 6,000 square kilometers within the municipality. Statistics show that the six major industrial bases and industrial parks/zones at or above municipal level had an industry concentration rate of 50%. The distribution of the six advanced manufacturing industries is shown in Figure 2.8.

2.1 Microelectronics Industry Base The clustering of Shanghai’s microelectronics industry in Pudong, Caohejing, Songjiang, and Qingpu is accelerating. The “one belt,

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two zones” layout of the microelectronics industry has taken shape. Shanghai has bloomed into one of the most attractive investment destinations for the integrated circuit (IC) industry. Shanghai’s IC industry has achieved a historic breakthrough in recent years. It has taken its preliminary shape as a well-structured chain with clear division of labor for the IC industry, covering design, packaging, testing, and other upstream and downstream activities. Represented by Huahong NEC, SMIC, Grace, ASMC, TSMC, Hanshengke, and Xuqing, Shanghai’s IC industry will have eleven 8-inch IC production lines, and six 4- to 6-inch production lines. The industry also boasts some highly competitive design providers, such as Huahong Design and Via Technologies. In addition, world leading IC packaging and testing giants, such as Intel, Amkor, ASE, STATS ChipPAC, and GAPT, have also established their offices and operations in Shanghai. With Zhangjiang as the core and Shenjiang Road as the axis, the Pudong microelectronics belt stretches toward Jinqiao Export Processing Zone and Waigaoqiao Bonded Zone, and expands into their vicinity. As a south–north base, the belt measures 25 square kilometers of the planned area. In 2003, the IC industry sales of the Pudong microelectronics belt grew by more than 100%. Five 8-inch IC production lines were in operation, 600,000 8-inch wafers were produced, and an output of nearly RMB 7 billion was generated from wafer production. The Caohejing New Technology Development Zone has become an ideal place for the IC industry. Sales revenue of Caohejing’s microelectronics industry exceeded RMB 8 billion in 2003, up 40% over the previous year. Currently, there are over 70 IC companies in Caohejing, employing more than 7,000 people. Caohejing is one of the largest bases for chip R&D and manufacturing in China. With a planned area of 18 square kilometers, the western part of Songjiang Industrial Zone primarily focuses on IC packaging. TSMC, the leader of the global chip OEM services, decided to build a plant here. The first phase of this project, involving a total investment of US$898 million, was completed and went into operation in 2004. The Qingpu Industrial Zone for Taiwanese Enterprises, measuring 9.9 square kilometers in area and currently under construction, serves as the core area for developing the microelectronics industry.

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A number of microelectronics companies, such as ChipMOS (total investment US$3.6 billion), Hanshengke (total investment US$3 billion), and Xuqing Semiconductors (total investment US$5 billion), have flocked in. Datang Mobile and Chenxian Electronics have also settled down in this zone.

2.2 Automobile Industry Base Shanghai’s automobile industry is moving rapidly toward three strategic objectives: to sell 1 million locally manufactured cars annually by 2007; to rank among the world’s top 500 companies; and to produce another 50,000 self-branded cars. While maintaining momentum amidst fierce market competition, it has gradually developed a fullrange industry chain. The clustering of most automobile enterprises has positively impacted the development and growth of such bases as Shanghai International Automobile Town and Pudong Jinqiao. In 2003, more than 600,000 cars of various models came off production lines in Shanghai and 390,000 of them were from Shanghai Volkswagen, and 200,000 from Shanghai GM. Shanghai Automotive Industry Corporation, with sales revenue of RMB 109.56 billion, was listed in the world’s top 500. Shanghai International Automobile Town is located in Anting, covering an area of 68 square kilometers. It comprises five districts: the core district, the finished vehicles and auto parts manufacturing district, the international circuit, the vocational education district, and Anting’s new town. After three years of development since its inception on September 28, 2001, the town has now entered the stage of comprehensive development. Important progress has been made in the development of various functional districts, such as manufacturing, trade, international circuit, R&D, auto parts, Tongji Automobile College, and the new town. Shanghai Volkswagen, situated in the industrial district of the automobile town, renewed its cooperation agreement with German Volkswagen for 20 years in 2002. A number of major projects were initiated, such as a project to add a manufacturing capacity of 100,000 cars per year to its third plant, and a project involving the production of 300,000 engines per year for economy cars. A state-of-the-art car testing area at Shanghai Volkswagen went into

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operation in 2003. All facilities were completed for the planned 8-square-kilometer auto parts area. By the end of 2003, more than 200 domestic and overseas enterprises had invested in the automobile town, representing a total contractual investment of RMB 25 billion. The circuit was fully completed and was used for the Formula One China Rally in September 2004. Shanghai GM’s Jinqiao base covers an area of 550,000 square meters. Its maximum capacity was increased to 180,000 vehicles per year in 2003. Shanghai GM has adopted a differentiated development strategy, and its 2007 target is to achieve 450,000 finished vehicles per year. Within the next few years, Shanghai will build and maintain three automobile manufacturing bases in Anting, Jinqiao, and Lingang. It is estimated that the planned and in-progress automobile-related projects will make up some 15% of the total industrial investment for the coming three years. Shanghai’s automobile industry will achieve a total output of RMB 280 billion in 2007. By 2010, China’s automobile industry will have reached a capacity of two million vehicles per year, of which 1.5 million will be made in Shanghai, and the industry’s total output will have surpassed RMB 400 billion.

2.3 Petrochemical Base Centered on Shanghai Chemical Industry Park and connected with the Shanghai Petrochemical Company, Shanghai’s Petrochemical and Fine Chemical Base forms a belt of 60 square kilometers on the northern flank of Hangzhou Bay. Shanghai Chemical Industry Park has a planned area of 29.4 square kilometers. It was one of China’s biggest investment projects during the Tenth Five-Year Plan period, and will involve a total investment of RMB 150 billion for its Phase One. After completion, the park will achieve a RMB 100 billion industrial output. The Shanghai Chemical Industry Park is located at the junction of Jinshan and Fengxian districts in Southern Shanghai. The park is connected to Shanghai’s inner city by Expressway A4, which has access to the Shanghai–Nanjing and Shanghai–Hangzhou Highways. It is about 50 kilometers away from both Pudong and Hongqiao airports, and a dedicated within-the-zone branch railway connects

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it to the 113 kilometer-long Pudong Railway. Through dredged inland waterways, it is also linked to the Huangpu and Yangtze rivers. In addition to its own dedicated shipping dock, the chemical zone is just 55 kilometers away from the Yangshan Deep Water Port under construction. This efficient integrated transport network ensures convenient transportation for all investors. The park offers the best possible investment environment to its investors, with in-park facilities for product-based projects, public utilities, logistics and transfer, environmental protection, and administrative services. The park has attracted such multinationals as BP, BASF, Bayer, Degussa, Huntsman, Mitsubishi Gas Chemical, and Mitsui, as well as such utilities giants as Suez, Vopak, Air Liquide Group, and Plexus. By the end of 2004, a total of US$8.82 billion had been invested in the park, launching it on the way to becoming Asia’s largest, most advanced world-class petrochemical base.

2.4 Top-quality Steel Base Backed by Baosteel, Shanghai’s top-quality steel base is China’s largest and most modern steel production base. Its core area is in the Baoshan District of northern Shanghai, bounded by the Yangtze River on its north side and the estuary of the Huangpu River on the east. During the Tenth Five-Year Plan period, the concentration of Shanghai’s top quality steel industry intensified, with Baosteel accounting for over 95% of Shanghai’s total steel production. The remaining 5% went to Shanghai Krupp (Sino-German joint venture), Shanghai STAL (Sino-US joint venture), Walsin Lihwa (wholly Taiwan-funded), Shangshang Steel Pipe (private), Shanghai Heavy Machinery, and castings at certain shipyards. As a model of Shanghai’s top-quality iron and steel base, Baosteel Group has made considerable structural adjustments in recent years to concentrate melting, hot-rolling, and large-scale extended processing operations in the Baoshan district in order to form three specialized production centers and develop a northern processing base. The three centers and one base are: the carbon steel plate and pipe manufacturing center in the Baosteel Co. Ltd. Area, the stainless steel manufacturing center in the No. 1 Steel Plant and its vicinity, the special steel manufacturing center in the No. 5 Steel

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Plant, and the Luojing extended steel processing base in Luojing of the Baoshan district.

2.5 Equipment Manufacturing Base In order to promote the development of its equipment manufacturing industry, Shanghai planned the building of the Lingang Industrial Zone. The zone has considerable advantages in location. Lying close to Yangshan Deep Water Port and right next to Pudong Airport, Lingang New City is a comprehensive coastal city, integrating a seaport, an industrial district, and well-developed infrastructure and services. Lingang New City has two functional areas: Haigang New City and Lingang Industrial Zone. Located on the Yangtze estuary and Hangzhou Bay in southeastern Shanghai, and 50 kilometers away from the city center, Haigang New City has a planned area of 293 square kilometers. With Dishuihu Lake as its center, the urban living and comprehensive service region of Haigang New City has a planned area of some 100 square kilometers, of which 50 square kilometers is set aside for intensive urban development for a population of 500,000–600,000. Focusing on industrial development, the Lingang Industrial Zone has a planned area of about 200 square kilometers, 120 square kilometers of which will be earmarked for urban development for a population of nearly half a million. The main objective of the Lingang Industrial Zone is to develop a world-class modern equipment manufacturing industry. The zone will develop such industries as advanced manufacturing, modern logistics, R&D services, vocational education and training, export processing, and domestic and foreign trade so as to build itself into a comprehensive industrial zone with distinctive industry features and competitive advantages. The Lingang Industrial Zone comprises three main functional areas: the industrial area, the modern logistics park, and the auxiliary area. The industrial area features automobile, equipment and logistic sectors, and consists of a heavy equipment manufacturing area, a medium-weight equipment area, and a high-tech industrial area. As a support for the industrial area and a complement to the Yangshan Deep Water Port, the modern logistics park is an

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important component of the Lingang Industrial Zone. The auxiliary area consists mainly of living facilities in addition to other functional regions for R&D, residence, and tourism. Phase I of the Lingang Industrial Zone was divided into three parts: the heavy equipment manufacturing, the high-tech industry, and the logistics park. These three parts are linked by the Pudong– Yangshan Expressway. Priority will be given to the manufacture of automobile equipment, auxiliary equipment for ships, large machinery, and electrical equipment. The high-tech industry will focus on urban industry and R&D. Phase One of the logistics park is mainly aimed at providing logistics services for the industrial zone and the Yangshan Deep Water Port.

2.6 Shipbuilding Base As the birthplace of China’s shipbuilding industry, Shanghai currently has 19 ship building and repairing enterprises, which include four major corporations: Jiangnan Shipyard, Hudong-Zhonghua Shipyard, Waigaoqiao Shipbuilding, and Chengxi Shipyard. There are also 23 enterprises engaged in auxiliary businesses, 11 research institutes, and two colleges. The current shipbuilding capacity stands at about 3.5 million deadweight tons per year, accounting for over 40% of China’s total. Its main products include civilian and offshore engineering vessels, such as oil tankers, bulk cargo carriers, chemical tankers, roll-on/roll-off ships, roll and dump ships, large LPG carriers, large container ships, large self-unloading ships and high-speed ships, as well as auxiliary equipment for ships, such as low- and mediumspeed diesel engines, large forgings and castings, and steel plates for ships. As set out in its new development plan, Shanghai’s shipbuilding industry is implementing an industry-wide strategy to relocate from the Huangpu River shore to the Yangtze River estuary. The plan slates Changxing Island as the main area, and Shanghai’s shipbuilding industry base will comprise Changxing Island shipbuilding base, Waigaoqiao base, and Chongming. The 8-kilometer-long coastline (starting one kilometer downstream from Xinkai Port) will be used for shipbuilding. The preliminary plan is to build seven large docks to form a capacity of eight million tons.

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Waigaoqiao shipbuilding base has a planned area of 2.1 million square meters. Phase I was completed on October 18, 2003. Involving a total investment of RMB 3.214 billion and covering an area of 1.44 million square meters, the base had a capacity of 1.05 million deadweight tons. Construction of Phase Two, with a planned area of 400,000 square meters with 300,000 square meters reserved for the future, started in 2004, and was completed in 2006, with a total capacity of up to 2.5 million deadweight tons. Shanghai Chengxi Shipyard’s Chongming Base has a planned area of 1.51 million square meters, stretching along 2,350 meters of coastal line. There will be three floating docks, rated at 150,000– 200,000 tons, 100,000 tons, and 40,000 tons, and one semi-dock type slipway, rated at 70,000 tons. The base’s eventual shipbuilding capacity will be 1.5 million deadweight tons.

3. Emerging Industries All countries across the world are striving to develop emerging industries because of their high value added, low energy consumption, and strategic significance. The emerging industries in China are mostly plagued by a low level of industrialization and outdated technologies. With enhanced investment in the past few years, Shanghai has stayed ahead of other domestic cities, but there is still a big gap for Shanghai to bridge to meet global standards.

3.1 Biomedical Industry As one of the four emerging industries, the biomedical industry underwent intensive restructuring in terms of aggregate planning, overall layout, industrial composition, and performance during the Tenth Five-Year Plan period. Thus, a solid foundation has been laid for its sustainable development. Despite its year-by-year decline in its share of Shanghai’s economy during the Tenth Five-Year Plan period, from 2.7% in 2000 to 1.8% in 2005, Shanghai’s biomedical industry gradually moved to a fullrange system covering chemical raw drugs, pharmaceutics, finished Traditional Chinese Medicines (TCM), biological and biochemical

Development of Shanghai’s Advanced Manufacturing Industry Figure 2.9

77

Gross industrial output value of biomedical industry and its contribution to Shanghai industry (2000–2005)

RMB 100 mil. 300

% 3.0

250

2.5

200

2.0

150

1.5

100

1.0

50

0.5

0

2000 2001 2002 2003 Gross industrial output value

2004 2005 Percentage

0.0

Source: Shanghai Municipal Economic Commission, Shanghai Industrial Development Report for 2006, Shanghai: Shanghai Science and Technology Document Press, 2006.

products, medical apparatus, and healthcare products. As the largest in scale of these sectors, chemical drug manufacturing was the most profitable, with an output of RMB 15.2 billion in 2005, accounting for 54% of the industry’s total. Sectors with an annual output value of more than RMB 2.5 billion included medical apparatus, finished TCM products, and biological products. Healthcare products, with the smallest output value, enjoyed the fastest growth. It achieved an output value of RMB 340 million, double the figure of 2000, and its profit grew 9.4 times to reach RMB 60 million. Investors from Hong Kong, Macao, Taiwan, and foreign countries have played a leading role in building Shanghai’s biomedical industry. In the Tenth Five-Year Plan period, there was a huge influx of overseas investment into this sector, giving it a strong development impetus. The total output of foreign-invested enterprises reached RMB 13.4 billion in 2005, accounting for nearly 48.7% of the industry’s total as compared to 40% in 2000. At the same time, a large number of state-owned enterprises were transformed into joint-stock companies through restructuring. The output contribution of the state-owned section dropped from 18% in 2000 to 8% in 2005, while the figure

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for joint-stock companies rose from 27% to 38%. Private businesses also showed rapid growth with a total asset of RMB 2.5 billion at the end of 2005, increasing nearly 20 times. Their total industrial output reached RMB 2 billion, growing 6.2 times. In 2005, the biomedical industry in Shanghai achieved a gross output value of almost RMB 28.2 billion, up 14% over 2004. By the end of 2005, there were a total of 364 biopharmaceutical enterprises, with an asset of RMB 38 billion. The industry performed well in 2005, with a main business income of about RMB 29.4 billion, up 11% from 2004, and a profit of RMB 2.1 billion, up 1.3%. Also in 2005, the industry completed an export value of RMB 4.7 billion, up 44% over 2004, and accounting for 17% of total sales. High export proportions were seen in raw materials, with sales revenue for chemical drugs at 40%, and medical apparatus at 38%. However, the industry’s national proportion was not high. Output accounted for 5% of China’s total, putting Shanghai in fifth place, after Shandong, Jiangsu, Zhejiang, and Guangdong. Shanghai’s 5.5% market share and 7% profit rate, were also both in fifth position. In 2005, new products contributed RMB 4.7 billion, or 16.6%, to the industry’s total output, five percentage points lower than the city’s average. Investment in science and technology development totaled RMB 1.1 billion, up 79% from 2000, of which RMB 400 million went to R&D, up 75%. Both growth rates were below Shanghai’s average level. R&D investment accounted for 1.4% of main business income, 0.7% higher than the average, but still far below that of developed countries.

3.2 New Energy Industry New energy is obtained through the utilization of new technologies and new materials, such as solar energy, wind energy, and ocean energy. As conventional energy sources, such as coal and oil, are very limited, and their use causes serious pollution, Shanghai has made vigorous efforts to develop new and clean energy. By the end of 2005, Shanghai had established five solar heat and light utilization units, and seven photovoltaic power stations as pilot projects, with a total generating capacity of 200 kW, and an annual power generation of 200,000 kWh. Eighteen wind power

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generators had been installed. The wind farm in Fengxian District generates 7.48 million kWh each year. In Yuqiao of Pudong and Jiangqiao of Jiading, resource-efficient power stations were set up to generate power by incinerating garbage. Since 2000, Shanghai has given its full support to projects using solar energy and its applications. Shanghai has developed a thirdgeneration, battery-powered prototype car and integration platform. Batteries for buses have proven to be reliable, and integration technology for finished battery-powered vehicles has reached an initial stage of development. Despite rapid development in recent years, Shanghai’s new energy industry has yet to strengthen itself in technology and competitive edge. In addition, obstacles in the way of development, such as insufficient material supplies, an immature market, financing difficulties, and so on, still lie ahead as a challenge to be overcome in the coming years.

CHAPTER

3

Development of Shanghai’s Modern Service Industry

1. Status Quo and Features

D

uring the Ninth and Tenth Five-Year Plan periods, there was general growth in Shanghai’s tertiary industry. At the end of the Ninth Five-Year Plan, the tertiary industry’s output accounted for over 50% of the city’s GDP. During the Tenth Five-Year Plan period, the figure once dived below 50% due to an impact from the SARS outbreak, but rose to 50.2% by the end of the period (see Figure 3.1). Figure 3.1

Proportion of tertiary industry in GNP (1996–2005)

% 52 50 48 46 44 42 40 38

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Shanghai Statistical Almanac for the years cited.

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1.1 Financial and Insurance Services After opening-up and reforms began in 1978, China has piloted many of its financial reforms in Shanghai, particularly in the 1990s. The tremendous changes and growing competitive strength of Shanghai’s financial industry can be seen in the new banking street on the Bund and the modern Lujiazui Finance and Trade Zone in Pudong. In 2005, Shanghai’s financial industry strove to become more market-oriented, and further progress was made in building a strong financial center. The industry achieved an incremental output value of RMB 68.987 billion, representing a growth of 11.6% over the previous year. Accelerated clustering of financial institutions In 2005, Shanghai had 73 newly established financial institutions, of which 11 were in banking, 59 in insurance, and three in securities. By the end of 2005, the total number of financial institutions reached 527, with 130 in banking, 227 in insurance, and 91 in securities. Foreign-invested operating financial institutions totaled 123, of which 14 were established in 2005. The 84 foreign banks and financial companies operating in Shanghai had a total asset of US$48.43 billion; 65 of these were granted RMB business licenses, and had a total RMB asset of RMB 114.455 billion. Twenty-nine foreign banks designated their Shanghai offices as the leading reporting branches for business operations in China. Since the second head office of the Central Bank of China was set up in Shanghai, the city has been striving to introduce RMB open market operations or to provide a window for RMB open market operations in Shanghai. At the same time, efforts have also been made to attract financial institutions, in particular state-owned commercial banks, nationwide securities, futures, and insurance businesses, to set up their head offices (or their intensive business centers, operation centers, or functional centers) in Shanghai. Continuous boosting of financial service functions At the end of 2005, Shanghai’s financial institutions had a savings deposit balance of RMB 2.33 trillion, with an annual increase of

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RMB 314.28 billion, as well as an outstanding balance of loans of RMB 1.67 trillion, with an annual increase of RMB 178.59 billion. The outstanding balance of individual consumption loans was RMB 281.416 billion, with a yearly increase of RMB 14.15 billion. Of these loans, RMB 264.49 billion went to housing mortgages, up by RMB 19.94 billion. In 2005, the cash income of financial institutions amounted to RMB 2.12 trillion, and cash expenditure hit RMB 2.17 trillion. With income against expenditure, the net currency issuance was RMB 50.565 billion. The NPL ratio of Chinese banks in Shanghai was 3.39%, down 0.58 percentage points from the beginning of the year. Quickened innovation and steady development in the financial factor market In 2005, Shanghai Stock Exchange’s total turnover was RMB 4.97 trillion, down 35.2% from the previous year. Out of the total turnover, RMB 1.92 trillion went to equity, decreasing 27.3%, RMB 2.81 trillion went to bonds, going down 43.4%, and RMB 15.58 billion went to funds, falling 37.4%. The types of securities on the securities market were on constant rise. Throughout 2005, the total listings stood at 1,069, an increase of 73 from the previous year, with stock listings dropping by three to 878. A total of RMB 29.97 billion was raised through the capital market, down 49.1 % from 2004. From this total, RMB 2.855 billion was raised from new issues, dropping 88% from the previous year. Reissued shares (including secondary offerings, right issue, and displacement of state-owned shares) raised RMB 27.12 billion, an increase of 23.5% from 2004. By the end of 2005, 125 companies had completed the reform of non-tradable shares, accounting for 14.2% of the total number of listed companies on the Shanghai Stock Exchange. The city worked to stimulate innovation in the financial industry. New products, such as the Shanghai-Shenzhen 300 Index, forward bonds, and short-term corporate bonds, were introduced. Turnover of the interbank lending market stood at RMB 23.21 trillion, an increase of 73.3% from the previous year. The futures market had a turnover of 67.57 million board lots, decreasing 16.7%, and a total transaction of RMB 6.54 trillion, down by 22.4%. Trading on the gold market was brisk, with

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a yearly transaction of RMB 116.843 billion, increasing 46.7%. The diamond market figure was US$410 million, an increase of 11.4% over the previous year. Sound development in the insurance industry By the end of 2005, Shanghai had a total of 70 insurance companies, 12 more than in 2004, and 157 insurance agencies, of which 47 were new that year. The annual income from insurance premiums was RMB 33.36, up 8.8% from the previous year. Of this sum, RMB 8.78 billion was from property insurance, increasing by 18.2%, and RMB 24.57 billion was from life insurance, increasing by 5.8%. Of the total premium income, RMB 27.5 billion went to Chinese insurance companies, increasing by 5.6%, and RMB 5.822 billion to foreign insurance companies, increasing by 27.1%. The total settlement from the insurance industry amounted to RMB 8.746 billion, an increase of 23.2% over the previous year, with RMB 4.726 billion contributed by property insurance, an increase of 38.8%, and RMB 4.02 billion from life insurance, an increase of 8.9%. Enhanced competitiveness for the financial industry The clustering effect and competitiveness of Shanghai’s financial industry have proved not only in attracting foreign financial institutions, but also in securing non-financial organizations from all over China. Over more than ten years of hard work, Shanghai has developed the framework necessary to becoming the country’s financial center. An effective financial service system has emerged, and finance has become one of Shanghai's pillar industries. Shanghai's key position in China’s financial business and the city’s standardized operations reflect the development level of Shanghai’s financial system and institutions. The main competitive edge of Shanghai’s financial industry lies in the high quality of its human resources, the presence of a large number of multinationals, and its role as the base for most of China’s major financial markets. Other advantages include relatively low business costs, preferential policies, and even more powerful competitors.

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In the face of intense international and domestic competition, Shanghai plans to develop unique commodity futures so as to assure the city’s reputation as an innovative international financial center. The city’s financial center is constantly on the lookout for strategic innovations to ensure that its influence and competitive edge remain strong both at home and abroad. Shanghai is taking well-planned steps to enhance its development of new commodity futures, and to establish a commodity futures system, focusing on metals, precious metals, energy, and grain. This will make the city an important pricing and trading center domestically and globally, and pave the way for the introduction of financial derivatives in the future.

1.2 Logistics Services Shanghai’s modern logistics services have been developing rapidly since opening-up and reforms began. During the Tenth Five-Year Plan period (2000–2005), modern logistics became one of the pillars of Shanghai’s modern service industry. In 2005, Shanghai’s total freight transportation was 687 million tons, an increase of 8.8% over the previous year. Its port handled 443 million tons of cargo, up 16.9%, making Shanghai the world’s largest cargo port. A total of 18.08 million TEUs were handled, an increase of 24.3% over the previous year, which made Shanghai the world’s third largest container port. Its airfreight throughput reached 2.21 million tons, increasing by 13.9%, ranking Shanghai No. 1 in China. Shanghai’s logistics industry is expected to reach a total output value of RMB 255 billion in 2005, increasing by about 18% from the previous year. The industry’s projected value added is RMB 118.9 billion, up about 15%, and accounting for 13% of Shanghai’s GDP and 25% of the service industry’s value added, 1 and 0.8 percentage points higher respectively than the previous year. The modern mode of logistics management, characterized by IT application and a supply chain management, has been adopted in such industries as steel, automobile, pharmaceuticals, chemicals, and chain stores. Baosteel has signed a “Strategic Cooperation Agreement” with China Shipping, and an “Integrated Management Cooperation Agreement” with FAW Group and Sumitomo. Through

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such agreements, the group’s position as a strategic supplier has been reinforced and enhanced. Large commodity circulation enterprises, such as Brilliance Group and Nonggongshang Supermarket, have established logistics and distribution networks to support the development of chain stores as their core business. The integration of commercial, commodity, and information flows has prompted the formation of the modern logistics and distribution networks in support of the pillar industries and chain stores in Shanghai. During the Tenth Five-Year Plan period, Shanghai aimed to build four logistics parks. Phase I of the Yangshan Deep Water Port has been successfully completed, and the Yangshan Bonded Port is now in operation. The Lingang International Logistics Park has actively attracted world-famous logistics companies, such as Prologis and Caterpillar, as well as large domestic logistics enterprises. Waigaoqiao, Airport, and Northwest Comprehensive Logistics Parks have gradually improved their service functions. Thirty-eight logistic projects with investments from 15 well-known domestic and foreign logistics companies have settled down in the Waigaoqiao Bonded Logistics Park. A new round of planning and construction has begun for Pudong Airport Logistics Park. The Northwest Comprehensive Logistics Park has already attracted 59 domestic and foreign logistics companies, comprising 60% of China’s pharmaceutical logistics and distribution, and 75% of Shanghai’s retail logistics and delivery. Also during the Tenth Five-Year Plan period, Shanghai’s stateowned logistics enterprises, such as the International Port Authority, J.Y. Group, Orient International, Jihaijieya, and Brilliance Modern, were restructured and developed. Global logistics enterprises such as Federal Express, TNT, Maersk, and UPS, set up modern logistics services in Shanghai. A considerable number of privateowned domestic logistics enterprises, such as Beifang, Hongxin, Yuancheng, and Jiaji, focused on supply chain management and IT-based logistics, and formed a unique mode of logistics services, providing outsourced logistics services to trading firms as well as wholly foreign-invested or Sino-foreign joint venture manufacturing enterprises. A number of joint venture logistics enterprises with modern logistics management experience and technology grew rapidly, providing comprehensive logistics services for advanced manufacturing, such as ANJI-TNT. In sum, Shanghai has established

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a common development platform for enterprises of different ownerships and those providing specialized logistics services. It is true that Shanghai’s modern logistics services have made great progress. However, given the fast increasing demand for such services generated by the city’s sustained and rapid economic and social development, the industry still needs to improve in such aspects as the structural conflict between supply and demand, the inefficient use of logistics facilities, and a lack of qualified professionals. Being an international shipping center is a key asset for any world-class city. Shanghai set the target to become an international shipping center years ago and adopted many effective measures in that regard. The essential conditions to build an international shipping center are: a solid economic foundation, sufficient supply for import and export and container transport, a developed and sound shipping market, an advantageous geographical location with ports near international shipping lines and supported by a highly developed river shipping system, deep water terminals and good quality terminal facilities suitable for berthing international ocean shipping vessels, and first-class comprehensive services. After nearly 200 years of development, Shanghai Port is now evolving from a second-generation port (value addition through processing) into a third-generation port (comprehensive resource allocation). It is qualified to become an international shipping center. Firstly, the port handles nearly 90% of the goods for Shanghai’s foreign trade. The port is not just a place for loading, unloading and transfers, but also the platform for logistics, and a center for the distribution of imports and exports. Official analysis shows that 90% of Shanghai’s logistics falls into the category of port logistics. Secondly, Shanghai Port has achieved sustained growth in its cargo throughput, and has shown a sharp increase in container handling. Accordingly, its world ranking has risen quickly. Total cargo throughput stood at 220 million tons in 2001, and rose to 260 million tons in 2002, which took Shanghai Port to third place worldwide in 2002. In 2004, cargo handling amounted to 379 million tons, up 19.8% over the previous year, making it the second busiest port in the world. Container handling for the same year reached 14.55 million TEUs, representing a net increase of

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3.272 million TEUs, or 29% growth over the previous year. By the end of 2004, Shanghai port had 19 international container shipping lines connected to 500 ports in 200 countries and regions in the world. The number of container liners docking at Shanghai Port each month reached 1,716, up 222 from the previous year. In 2005, Phase I of Yangshan Deep Water Port was completed and put into operation, marking another step toward elevating Shanghai’s status as an international shipping center. That year, Shanghai Port achieved an annual cargo throughput of 443 million tons, rising 16.9% from the previous year, and making it the world’s largest port. Annual container handling reached 180.84 TEUs, representing a net increase of 3.53 million TEUs, or a growth of 24.3%, assuring Shanghai a place among the world’s top three ports. Thirdly, Shanghai Port has improved its infrastructure to comply with the requirements of international shipping. A port structure has emerged in which main hub terminals play a key role, supplemented by vital regional terminals and small terminals. The Shanghai Shipping Exchange has been set up, and deep water dredging has been conducted at the Yangtze estuary. This has greatly improved the port’s capability in terms of vessel tonnage and container transfer systems. Large specialized container terminals, such as Waigaoqiao, are now ready for use. The completion of the first phase of Yangshan Deep Water Port has considerably increased the port’s navigability and efficiency. With improved efficiency in loading and unloading facilities and customs clearance, the vessel berth time has been dramatically reduced.

1.3 Business Services By the end of 2004, there were a total of 19,000 providers of business services in Shanghai, accounting for 15% of the producer service industry. The business service sector had a work force of 480,000, accounting for 26% of the producer service industry, and with an annual main business income of RMB 20.74 billion, accounting for 11%. Within the business services sector, legal, accounting, auditing, and taxation services are developing very rapidly. In 2004, a total of over 1,300 institutions employing 24,000 people were engaged in

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such services. However, these made up only a very small percentage of the producer services industry, and their level of service remained low. In addition, Shanghai’s conference and exhibition service industry is also fast developing, and already has 1500 companies employing 13,000 people. Research and development services By the end of 2004, there were 10,000 R&D institutions in Shanghai, involving a workforce of 160,000, a total asset of RMB 63 billion, and major business revenue of RMB 21.5 billion. In 2004, the number of institutions and the size of the workforce made up 8% and 8.7% respectively of the producer services industry. The efficient utilization of innovation resources in science and technology remains to be improved. Design, creative, and consulting services At the end of 2004, there were nearly 30,000 units in Shanghai, providing design and creative services to the manufacturing industry, with a workforce of 340,000, a total asset of RMB 156.6 billion, and annual major business revenue of RMB 87.3 billion. Surveying and consulting services developed rapidly and had great market potential. In the same year, there were more than 14,000 agencies engaged in the surveying and consulting business, representing 47.7% of the total for design and creative services. In addition, a number of well-known domestic and foreign consulting firms set up offices in Shanghai. The software industry has also grown very quickly. Since 2001, Shanghai’s software industry has sustained an annual growth of more than 50%. The advertising industry also enjoyed rapid development, and new advertisement media emerged one after another. The concentration of the creative industry accelerated, with a total of 36 firms in operation in Shanghai. Occupational education services At the end of 2004, there were 1,600 occupational education and training service institutions in Shanghai, with a workforce of 57,000.

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Occupational skill training is at the core of vocational education services. By the end of that year, there were 1,100 institutions engaged in occupational skills training in Shanghai, accounting for 68% of vocational education services. Non-governmental institutions became the main providers of occupational education. Exhibition services Management Methods for the Exhibition Industry of Shanghai was released on March 15, 2005 and came into effect on May 1. In 2005, Shanghai hosted a total of 276 international exhibitions covering 14 categories and 77 subcategories such as automobiles, machine manufacturing, electronic engineering, textiles, and garments. These exhibitions covered a total space of 3.76 million square meters, with an average of 13,600 square meters per exhibition. The number of exhibitions held in 2005 was approximately the same as in 2004, yet the total and average space increased by a record high of 23% and 26% respectively.

1.4 Commercial and Trade Services In 2005, Shanghai’s total sales volume reached RMB 1.29 trillion, up 15% over 2004 and 3.7 percentage points higher than that of 2004. The total sales realized through wholesaling came to RMB 1.03 trillion, an increase of 16.3% over the previous year, representing 79.82% of total sales for the city. Of this figure, RMB 613.6 97 billion came from wholesalers and retailers, accounting for 47.41% of total merchandise sales. In 2005, Shanghai’s total goods purchase stood at RMB 1.10 trillion, representing an increase of 13.5% over the previous year, and 3.5% higher than the growth rate in the previous year. Fortytwo percent, or RMB 463.806 billion-worth of goods was purchased from wholesalers and retailers. Wholesale and retail In 2005, fixed asset investment in wholesale businesses increased threefold over the previous year. In the same year, trading was brisk in commodity wholesale markets: there were a total of 1053

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commodity trading markets, with an annual trade volume of RMB 254.5 billion, an increase of 8.3% over the previous year. In the retail business, Shanghai saw a sharp rise in the number of supermarkets in 2005. By the end of the year, there were 5,237 supermarkets in the city, with 2,315 of them located in urban districts and 2,922 in the outskirts, up 28.4% and 45.5% respectively over the previous year. In 2005, there were 262 large comprehensive supermarkets in Shanghai, with 112 within the city and 150 beyond it, an increase of 7.7% and 4.2% respectively over the previous year. At present, Shanghai’s large supermarkets are concentrated in the city center: 23 within the inner ring, 60 between the inner and outer rings, and 43 outside the outer ring. Backed by sufficient capital and rich operational experience, foreign-invested enterprises are opening new stores at a faster rate. Foreign-invested supermarkets accounted for more than 50% of all supermarkets opened in 2005. By the end of the year, there were 67 large foreign-invested supermarkets in urban areas, making up 60% of the total number of supermarkets, and their retail sales accounted for 76%. In 2005, there were 5,528 convenience stores in Shanghai, with 3,894 located within the city, and 1,634 in outer areas, a decrease of 6.4% for the city, and an increase of 32.2% for the outer areas. This divergence suggests that the conditions have changed for the opening up of convenience store markets in Shanghai. Shanghai’s general merchandise industry continued to be China’s leader in 2005. Of China’s top 100 department stores with a retail volume exceeding RMB 100 million, 20 were located in Shanghai. Two of these (Number One Yaohan and New World City) were amongst China’s top ten. The top 50 included Xuhui Store of the Orient Department Store, Huijin Department Store, Number One Department Store, Jiuhai Parkson, Xuhui Store of the Pacific Department Store, Landmark Square, Nandong Store of the Orient Department Store, Huaihai Store of the Pacific Department Store, and Hongqiao Friendship Department Store. In 2005, there were 3,927 specialized chain stores in Shanghai. These stores had an annual retail turnover of RMB 18.7 billion, with RMB 14.72 billion contributed by appliances stores, and RMB 3.43 billion by building materials stores.

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In the same year, electrical appliances and communication products became more concentrated in large, specialized stores. Most department stores and large supermarkets shied away from the large appliances business. This gave large specialized stores an edge in the electrical appliances market. In 2005, retail sales for Yongle, Gome, Suning were RMB 9.93 billion, 2.47 billion, and 2.64 billion respectively, and accounting together for 90% of the total for specialized appliances stores. At the end of 2005, there were 37 shopping malls in operation in Shanghai, totaling 3,559,000 square meters in floor space with an average of 97,000 square meters per mall. Sixteen of these had a floor space of over 100,000 square meters. A further 26 shopping malls were under construction, with a total floor space of 4,006,000 square meters, and an average of 154,100 square meters.

Insight 3-1 The Rise of Lianhua Supermarket In May 1991, the first Lianhua supermarket was set up in Shanghai. Today, there is one Lianhua chain store for every four square kilometers in the city. In 1996, Lianhua supermarket opened its very first store outside Shanghai. Today, its blue-and-yellow logo can be seen across 80 cities in China’s ten provinces. Starting out with a single 800-square-meter store, Lianhua has grown into a chain of 3,000 stores in 20 provinces and municipalities, becoming China’s biggest chain retailer. At the beginning of the 1990s, as one of China’s pilot cities to open up the retail industry, Shanghai set up the country’s first Sino-foreign joint-venture department store. Soon afterwards, a number of global chain store giants, such as Carrefour and Metro, opened stores in Shanghai. With their advantages in capital and operational experience, these commercial giants

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posed a serious challenge to state-owned enterprises, which were still struggling with structural transformation. At the time, the five-year-old Shanghai Lianhua business was still below the breakeven point, and was suffering from a loss of over RMB 5 million. Should the company quit or stay in the game? In 1996, Lianhua’s newly appointed leadership faced this hard choice. The management realized that shopping space meant a lot in market competition and therefore they made a decision to implement a plan for large-scale business expansion. Lianhua set up joint ventures in Shanghai’s suburban counties, and opened franchises along the Yangtze commerce and trade corridor. Through domestic joint ventures, the company joined forces with such major players as Shanghai’s Shanbei Supermarket and Xinxin Supermarket. The company also worked with Shanghai Industry (Group) Co. Ltd. and Mitsubishi to co-establish Shanghai Lianhua Supermarket Co. Ltd. In the same year, the number of Lianhua chain stores jumped from 41 to 108, and the number of newly opened stores within that single year was 1.5 times the total for the previous five years. The long-standing losses gave way to a bumper profit of more than RMB 100,000 in the same year. Over the past few years, Lianhua has been leveraging its flexible and diversified capital operations to expand its business scale. Through acquisition and restructuring of dozens of smalland medium-sized companies, such as Baijia Convenience Store, Yongchang Supermarket, and Weimin Supermarket, the company has acquired more than 100 supermarket stores. Through restructuring the assets of such outside-Shanghai supermarkets as Jinlongwanjiafu in Hangzhou and Baihui in Suzhou, Lianhua has set up many new stores in Jiangsu and Zhejiang Provinces. Moreover, its franchise operation has put hundreds of diverse supermarkets under its logo.

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Riding on its post-expansion success, Lianhua is now striving to shore up its core competitive strength, and has achieved continuous breakthroughs in strategic, operational, management, and technical innovation. Lianhua has established a nationwide commodity purchase network and China’s first large-scale, intelligent distribution center. Advanced computer information systems have been deployed in all Lianhua’s stores, ensuring automated commercial management for its wide network of stores. Source: based on a Xinhua news story at http://news.xinhuanet.com/fortune/2002-01/16/ content_240489.htm

Catering services In 2005, Shanghai’s catering industry achieved a turnover of RMB 35.13 billion, increasing 25.4% from 2004, and accounting for 11.78% of the city’s total retail sales of consumer goods for the year. According to the 2005 statistical data released by the Shanghai Food and Drug Supervision Bureau, there were 32,768 catering entities with sanitary permits, an increase of 6.15% over the previous year, and with a workforce of about 500,000. The industry also saw a continuous expansion of independent restaurants and chain restaurant operations into communities and luxury business zones. The data provided by the Shanghai Catering Industry Association on its 89 members showed that their turnover was RMB 9.62 billion in 2005, an increase of 11.11% over the previous year. Fifty-three of these catering companies were full catering providers, with a turnover of RMB 5.313 billion, an increase of 11.1%; twenty-five served recreational meals and fast food, with a turnover of RMB 2.457 billion, an increase of 10.08%; and 11 were guest house catering businesses, with a sales volume of RMB 1.85 billion, up 12.94%. A huge number of domestic and foreign catering operators have established businesses in Shanghai. Market competition has created

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a tremendous variety of flavors, ranging from various Chinese regional cuisines to exotic foods from numerous countries. Informal catering, especially that offered by Hong Kong- and Macao-style tea restaurants, is growing rapidly. Serving a wide range of food and beverages, and with long opening hours, these establishments are very popular with white-collar customers. There is increasing diversification in the catering business. The main styles of catering in Shanghai include: a range of mainstream formal meals (Chinese, Western, Shanghai, and various regional flavors, including both local and foreign ethnic cuisines at different service standards), fast food (Western, Chinese, and Dim Sum), food delivery services (supplying services such as workplace meals, student meals, family meals, and breakfast, etc.), leisure and culture-related catering (including bars, cafés, tea houses, 24-hour recreational food services), auxiliary catering services (including bath house dining, art dining, musical dining, bakeries, and self-service food and drinks outlets), and catering services targeted at certain consumer groups (such as children, club members, and office people). Owners and operators in the catering industry are attempting to modernize and add a personal touch to their businesses in order to satisfy the needs of different consumers and contribute to the market’s overall success. The consumption level of catered food is gradually rising. According to sample surveys, the consumption of food and drinks for recreation and relaxation shows a growing trend. Per-capita consumption at formal meals has gone up from RMB 50 to RMB 75. This rise in consumption has given an impetus to the development of catering businesses, and has been a driving force for the development of related industries. In the future Shanghai’s catering industry will work toward brand building, chain operation, and individualized services. The unique Shanghainese cuisine will continue while other cuisines, either Chinese or Western, will be introduced. Established catering enterprises such as Xiao Nan Guo, Mei Yuan Cun, Shanghai Families, and Heji Restaurant, will accelerate their chain business and set up purchase and delivery centers. The catering industry will also draw on Shanghai’s historical and cultural traditions to enrich Shanghai’s

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catering culture. Such enterprises as Lao Yang Fang and Shi Ku will become the calling cards of Shanghai’s catering industry. Foreign-invested retail and catering enterprises In 2005, Shanghai approved 986 foreign-invested retail and wholesale projects, an increase of 35.1% over the previous year, and accounting for 24.1% of the annual total for all foreign-invested projects. These projects involved a contractual foreign capital of US$1.207 billion, increasing by 124.37% over the previous year, and accounting for 8.37% of the year’s total for all foreign-invested projects. A total of 136 foreign-invested accommodation and catering projects were approved, up 16.24%, involving a total contractual foreign investment of US$145 million, up 143%.

1.5 Tourism Services In 2005, Shanghai's tourism industry overcame the negative impact of several natural disasters, such as bird flu, typhoons, and frequent rains, and continued to grow steadily. The industry achieved a revenue of RMB 160.426 billion, an increase of 9.0% over the previous year. The value added from tourism made up about 6.4% of the city’s GDP. The development of Shanghai’s tourism industry in 2005 was marked by the following characteristics: Firstly, there was a rapid growth in inbound tourism. The total annual number of inbound tourists was 5.7135 million, an increase of 16.1%. Of these, 4.44 million were overnight tourists, an increase of 15.3%. Foreign exchange earned from tourism amounted to US$3.61 billion, an increase of 16%. Secondly, the growing momentum of outbound tourism was maintained. The number of outbound tourists exceeded 510,000, up 3%. Thirdly, domestic tourism developed stably. In the entire year, the city received 90.12 million domestic tourists, generating revenue of RMB 130.84 billion, up 6.0% and 7.6% respectively. Fourthly, travel service enterprises showed a healthy business growth. Turnovers of tourist restaurants rose by about 10%, and travel agencies went up more than 20%. Fifthly, the scale of the tourism industry in general continued to grow, with an improved receiving capacity.

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There were a total of 354 star-rated hotels, 52 international travel agencies, and 711 domestic travel agencies, offering over 150 tour routes.

2. Distribution of Shanghai’s Modern Service Industry 2.1 Financial and Trade Zone Shanghai’s financial and trade industry is mainly located in the Bund area and Lujiazui in Pudong. The Lujiazui financial and trade zone is situated in Shanghai’s Pudong area, directly across the river from the Bund in Puxi, and encircled by the Huangpu River and the Inner Ring. Covering an area of 28 square kilometers, the zone boasts 130 high-grade office buildings, with an intelligent office space of 2.3 million square meters and an average occupancy rate of 92.5%. In addition, another 1,210,000 square meters of office space is under construction, in the core area of Lujiazui. Lujiazui has become a place of concentration for financial institutions. At the end of 2005, Pudong was home to more than 360 domestic and foreign financial institutions (120 domestic and over 230 foreign), with the majority located in Lujiazui. Lujiazui currently boasts nation-level factors markets spearheaded by securities, futures, and diamonds, and a network of financial institutions such as banks, insurance, securities, financial, fund, and financial leasing companies. Nearly 300 prominent domestic and foreign groups and enterprises, such as Siemens, Cimic, Alcatel, Thomson, and Baosteel, have established offices in Lujiazui. The Shanghai International Convention Center and the Grand Hyatt, which hosted the 1999 Fortune Global Forum, the Shangri-la Hotel, the Hotel Inter-Continental Pudong, among others, provide the zone with superb conference, exhibition, accommodation, and food and beverage facilities.

2.2 Logistics Parks During the Tenth Five-Year Plan period, Shanghai developed three logistics centers in Waigaoqiao, Pudong Airport, and the Northwest.

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Table 3.1 Logistics centers planned or under construction in Shanghai Name

Main Function

Waigaoqiao Logistics Center

Being home to 3,600 logistics and international trade enterprises on a storage space of two million square meters, the center provides transport, warehousing, inspection, and customs clearance service for bonded goods. Will gradually be extended to cover northern part of Pudong.

Pudong Airport Logistics Center

Integrates the functions of customs, custody, ground services, and agencies. Provides fast entry and exit services.

Baihe Commercial & Trade Logistics Center

Integrates commodity and trade circulation, logistics and delivery, industrial processing, science and technology development, life and relaxation, and tourism services.

Northwest Comprehensive Logistics Center

With a storage space of more than 600,000 square meters and housing more than 1,000 logistics enterprises, the center mainly provides land freight transportation services for the Yangtze Delta, Central China, and Northern China.

Wusong International Logistics Center

Focuses on the integrated transport of international containers, and steel distribution and delivery

Yangshan Port Logistics Center

Provides yard storage, transit shipment, packing and unpacking, and other related services for Shanghai’s planned Deep Water port zone

Apart from these, the Shanghai Wusong International Logistics Park, the Shanghai Baihe Commercial and Trade Logistics Park, and the Yangshan Port International Logistics Park are also currently planned or under construction (See Table 3.1). In 2005, the total amount of goods handled by Shanghai’s modern logistics sector was 678 million tons, an increase of 8.8% over the previous year. Of this amount, the port handled 443 million tons, an increase of 16.9% over the previous year, making Shanghai the world’s largest port. Container handling was 18.084 million TEUs, an increase of 24.3%, making it the third largest container port globally. Air cargo amounted to 2.21 million tons, an increase of 13.9 %, ranking Shanghai No.1 in China.

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2.3 Key Commercial Districts The word “commercial” here refers to commodity retail, wholesale, and services with physical business locations. They include catering, tourism, leisure, culture and recreation, household services, design, among others. In the mid 1990s, Shanghai developed a commercial layout of “three roads and four cities.” The “three roads” refer to Nanjing Road, Huaihai Road, and Sichuan Road. The “four cities” are Xujiahui Commercial City, the New Railroad Station Commercial City, Pudong New Shanghai Commercial City, and Yuyuan Commercial City. After more than ten years of development Shanghai has evolved a layout that is centered on the four-street and four-city municipal-level commercial centers, and supplemented by regional and residential commercial centers (see Figure 3.2). It has also accelerated commercial development in the suburban areas.

Figure 3.2

Layout of commercial areas in urban Shanghai

Location of city center in Shanghai municipality

CITY CENTER

Function: Commercial Services and Shipping Main Areas: Sichuan Beilu, North Bund and Daboshu

Function: Commercial services Main Area: No Night City

ZHABEI DISTRICT Function: Community commercial services Main Areas: Caoyang, Changfeng, Yichuan and Taopu

YANGPU DISTRICT

Hongkou District PUTUO DISTRICT

HUANGPU DISTRICT

JING’AN DISTRICT CHANGNING DISTRICT

Function: Featured commercial services, foreign commerce and trade Main Areas: Hongqiao Road and Zhongshan Park

Function: Retail and services for colleges and universities Main Areas: Wujiaochang and Kongjiang Lu

XUHUI DISTRICT

Function: Digital electronics, building materials and furniture, and recreation Main Areas: Hengshan Road, Yishan Road and Huaihai Zhonglu

LUWAN DISTRICT

Function: High-end commerce and Tourist souvenirs Main Areas: Nangjing Road, Xizang Road, and Zhongshan Donglu

Function: Second-level international brands Main Areas: Huaihai Road and Dapu Bridge Function: Top international and domestic brands, leisure and recreation Main Areas: Nanjing Xilu and Caojiadu

Source: China Industry Atlas — Shanghai (2004–2005), Beijing: China Social Science & Documentation Press, 2005

CHAPTER

4

Shanghai’s Industry Policies and Associations

I

ndustry policies refer to the various measures formulated by a country or a region in order to plan for, intervene in, and guide the formation and development of its industries. Industry policy is a type of policy that focuses on orientation, structure, and supply management. Industry policies mainly include those on industrial structure, industrial organization, and industrial distribution. Industrial structure policy aims to optimize and streamline industrial structure. Its functions include pushing forward the evolution of industrial structure according to the rules of industrial development, as well as planning for and promoting the development of leading industries. Industrial organization policy refers to the policy which regulates relationships between enterprises within the industry. The policy comprises two types of contradictory yet interdependent policies: one type encourages competition and restricts monopoly, while the other promotes capital centralization. Industrial distribution policy facilitates the efficient, spatial distribution of economic resources. On January 20, 2006, Shanghai Municipality approved the Outline of the Eleventh Five-Year Plan for Shanghai’s National Economic and Social Development (2006–2010) (hereinafter referred to as the Eleventh Five-Year Plan). The outline points out that Shanghai will be developed into an international economic, financial, trade, and shipping center by 2020. Taking this plan into consideration, the objective for the next five years will be to form the basic framework,

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and lay a solid foundation for Shanghai’s sustained development from 2011 to 2020. The specific goals are as follows: •

•

•

•

While optimizing industrial structure, raising economic performance, and reducing consumption, Shanghai is expected to register an average annual economic growth of more than 9%, and a GDP of RMB 1.5 trillion by 2010. The city’s industrial structure will gradually develop, with a service economy as the mainstay, and achieve simultaneous growth in local fiscal income and the national economy. Shanghai will significantly improve resource utilization, and reduce energy consumption per unit of GDP by 20%, as compared to the figure at the end of the Tenth Five-Year Plan. The city will seek to transform itself into an eco-friendly city, with environmental protection investment maintained at about 3% of the city’s GDP. Shanghai will establish a basic innovative system, and its R&D expenditure will account for more than 2.8% of the city’s GDP. Contributions to economic growth by scientific and technological progress will reach about 65%. A number of key enterprises with independent intellectual property rights, famous brands, and global competitiveness, will be founded. Comprehensive reform in education will be further intensified, and the skills of the work force will be further improved. Shanghai will speed up its formation of a diversified financial market and institutional network. The city works toward a globally influential financial center, building on its established role as a domestic financial center. It will form a development pattern that integrates domestic and foreign trade while giving equal importance to physical and service trade.

To fulfill these objectives, specific supporting industrial policies are needed. Shanghai’s Eleventh Five-Year Plan requires the city to continue to uphold the “tertiary, secondary, and primary” principle in industrial development. To form an industrial structure centered on a service economy, priority will be given to the development of the modern service industry and advanced manufacturing industries

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as well as the improvement of independent innovation capability. In addition, informatization will become the main aim of upgrading industrial standards and promoting the integrated development of secondary and tertiary industries.

1. Guiding Policies for the Development of the Modern Service Industry The Shanghai Municipal Government has the following policy suggestions on prioritizing the development of the modern service industry.

1.1 The Financial Service Sector Shanghai will step up its efforts to pool together financial institutions of various kinds. The city will make greater efforts to attract financial institutions such as securities, fund management, trust investment, and private banks. It will also seek to become the center for head offices, business headquarters, capital operation headquarters, regional headquarters, and data processing centers of existing Chinese institutions, as well as the regional headquarters, business headquarters, and main reporting banks of foreign institutions. Shanghai will gradually build up a solid financial market system. It will consolidate the leading position of the Shanghai Stock Exchange in the capital market, and actively develop the corporate bonds market. It will fully utilize the role of the Shanghai Foreign Exchange market and money lending Market as pricing centers. With the Shanghai Futures Exchange as a platform, vigorous effort will be made to develop the financial derivatives market. In addition, the city will also promote the insurance market and develop the reinsurance market so as to enable Shanghai to become China’s reinsurance center. Seizing the opportunity that Shanghai United Ownership Exchange was designated by the state as a pilot institution to handle state-owned equity transfer for enterprises directly under the central government, it will expand the scope and radiation effect of the equity trading. In addition, it will strive

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to establish organic links between different financial markets, so that the financial markets for currency, foreign exchange, capital, and insurance will become interconnected. Shanghai will make efforts to launch trading in crude oil futures, government bond futures and stock index futures, foreign currency forward, individual gold, gold futures, and China container freight index futures. It will vigorously promote liability insurance products, and speed up innovation in financial products. In addition, it will encourage the establishment of money brokers and new types of financial institutions for company pension and medical care. It will carry out further research to ensure a solid coordination system for risk prevention and control. To facilitate the building of a shipping center, appropriate related financial services will be developed. There will also be support for pilot innovation projects by such securities companies as Guotai Jun’an, Haitong, Shenyin Wanguo, and Orient. Active research will be done on innovated financial products for collaboration between banking, insurance, and securities in split operation mode, and explore other business innovation in financial institutions. Shanghai will use its financial model for economic modernization in the Yangtze Delta, and enhance the region’s financial cooperation and interaction. Much energy will be spent on implementing the “go out” strategy, encouraging cross-regional development of Shanghaibased banks, and buoying up financial institutions in the preliminary stages, in order to develop international markets. The city will cooperate with Hong Kong and encourage Shanghai-based and Hong Kong-based financial institutions to set up branch offices in the two cities. It will also encourage financial institutions to provide good support services for domestic exporters, and enhance insurance services for foreign trade, shipping, and other industries.

1.2 Cultural Services While meeting the basic needs of its citizens, Shanghai will rely on market mechanisms and strengthen international ties so as to accelerate development in cultural entertainment, education and training, sports and fitness, and healthcare, making it one of the most attractive cities for people from both China and overseas

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to live, work, and run a business. By 2010, the value added for Shanghai’s cultural services will reach RMB 50 billion, and the figure for education and training will amount to RMB 40 billion. To achieve these goals, Shanghai will adopt the following measures: •

•

•

Shanghai will further open its cultural markets in compliance with relevant legislation, and encourage private and foreign capital to invest in cultural projects through joint ventures, cooperatives, or shareholding. They will also be allowed to take part in cultural competitions of various forms, including equity trading, merger and acquisition, time-sensitive operation rights transfers, government franchise converted into equity, naming rights (sponsorship) of cultural activities, and franchise auctions. Shanghai is also keen to attract worldfamous recreation groups, and large-scale recreation facilities, such as theme parks. It will launch additional television channels in foreign languages to broaden its international reach. Shanghai will improve its layout of cultural facilities, as elaborated by the “one axis, two rivers, multiple circles, and featured blocks.” The “one axis” refers to three groups of cultural facilities located around People’s Square, Lujiazui, and Century Square. The “two rivers” comprise the cultural facility belts along the Huangpu River and the Suzhou River. The “multiple circles” include the four sub-city centers of Xujiahui, Huamu, Wujiaochang, and Zhenru, as well as Lingang New City, Songjiang New City, and Anting New Town in the suburbs. The “featured blocks” include Duolun Road, well known for former residences of famous people, and Taikang Road, popular for its antiques and works of art. Shanghai will develop the multimedia content industry and turn itself into a digital city. By adopting multimedia and network information technology, Shanghai will develop broadband multimedia, mobile communications, and a worldclass digital TV broadcasting platform. It will also promote the production and commercialization of such multimedia content as network-based education, digital movies, digital publishing, and business information. It will push forward the

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development of a network-based interactive entertainment industry, with all-round innovation in creative design, and development of and applications for cartoon and game software. In addition, it will set up remote healthcare, education and training centers, as well as establish electronic medical record and medical service inquiry systems. Shanghai will promote educational opportunities for local and foreign students, and strengthen vocational training. Shanghai will improve its infrastructure for international students, and over time, offer more opportunities for overseas students to enroll in its schools and universities. The number of foreign students is projected to rise to between 70,000 and 80,000 by 2010. No effort will be spared to attract more world-renowned academics and further expand the scale of postgraduate education. The city will step up Chinese-foreign joint educational programs. Furthermore, it will revise the vocational qualifications certification system, promote market-oriented training, and foster an examinations market for vocational qualifications and specialized skills evaluation. Shanghai will diversify medical investment and develop a multi-tiered medical service system. The city will bring in multiple social capitals to establish medical institutions, and encourage foreign medical institutions to set up joint-venture hospitals. It will support grade three hospitals to utilize their surplus resources for medical cooperation with world-famous medical institutions. The city will gradually expand and optimize high-end medical care, as well as such multi-tiered medical services as medical treatment and rehabilitation, and health care. Shanghai will make active efforts to host major sporting events, and foster the growth of the sports industry. Through hosting such international sporting events as the Formula One World Championship and the Tennis Masters Cup, Shanghai will endeavor to attract the contractors for the world’s top sporting events to set up their regional headquarters in Shanghai. Development of the sports industry will also be promoted in such areas as competition, fitness and recreation,

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and sports training and such sports-related industries as sports broadcasting, lotteries, performances, advertising, and the production and sales of sports products.

1.3 Modern Logistics and Shipping Services Adhering to the “zone-port interaction” strategy, Shanghai will accelerate the building of modern logistics bases, enhance shipping service, consolidate its position as a key center for global logistics, and endeavor to become a vital international container and air freight hub in the Asia-Pacific region. By 2010, container handling will reach 25 million TEUs, air cargo volume 3.2 million tons, and the value added of the logistics industry will account for more than 10% of the city’s GDP. Specific policies and measures designed to achieve these will include the following: •

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Shanghai will implement the “zone-port interaction” strategy fully in Waigaoqiao and provide fast and convenient customs clearance for imports and exports in the port zone. Shanghai will study the functional positioning of Yangshan Deep Water Port Zone and fully utilize the strategy’s guidance for the bonded and export processing zones. Effort will be made to increase the frequency of ocean liners dockings at Shanghai port so as to reduce the transit cost for foreign trade containers along the coast. Other areas pinpointed for fast development in the shipping service industry include ship leasing, maritime arbitration, shipping transactions, insurance, and consultation. Shanghai will leverage its two international airports and its unique geographical location. It will also quicken the expansion of Pudong Airport, and the construction of its auxiliary projects. International cooperation in airport management and operations will be actively sought in order to attract as many Sino–US air cargo lines to Shanghai as possible. Initiatives will be put in place to attract international air transport giants to set up China operation centers and regional headquarters, and develop their air cargo transportation business in Shanghai.

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Shanghai will put in place a coordination mechanism for modern logistics and formulate a strategic plan for the logistics industry while promoting standardization. It will also eliminate prior registration approval for enterprises (unless otherwise stipulated by the central government), abolish business qualifications approval for international freight transport agents, and set up reasonable taxation criteria for the turnover tax of logistics enterprises. Relying on the hinterland of the Yangtze Delta, Shanghai will accelerate and coordinate the construction of combined ports in the area, develop an efficient distribution network for freight transportation between Shanghai and other cities, and build an intercity network of high-speed railways and expressways. It will focus on the construction of Waigaoqiao Logistics Park, Pudong Airport Logistics Park, Northwest Logistics Park, and Deep Water Port Logistics Park, among others. Connections will also be established between the logistics information platforms of export processing zones, the bonded zone, and the special zones controlled by customs. The city will also establish connection with and share logistics information with major domestic and foreign seaports and airports, build up a multiple transportation logistics network system through the “five-ports-in-one” strategy which integrates deep water, sea, air, land, and information ports. Through the integration of domestic and foreign markets, and with competition and cooperation between logistics enterprises, Shanghai will foster the growth of a well-developed third-party logistics market. The city will provide key support to outbound projects of large local logistics enterprises, and inbound projects from large logistics enterprises outside Shanghai and China. It will also support logistics enterprises that undertake large-scale logistics outsourcing projects from industrial and commercial enterprises.

1.4 Exhibition and Tourism Industries By taking its turn as the host for the World Expo 2010, Shanghai will improve the environment and upgrade its infrastructures, broaden

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the tourism industry’s reach, develop particular tourism products, enhance exhibition and tourism service functions, and better define the city’s signature image. By 2010, Shanghai is expected to be the venue for 500 international exhibitions, 20 international top brand exhibitions, and 1,000 international conferences, and the city will provide accommodation for 5.5 million foreign tourists. There will be 60 international hotels and travel services. With these objectives fulfilled, Shanghai will transform itself into one of the most outstanding international destinations for exhibition and tourism in the Asia-Pacific region. Shanghai will speed up the development of cultural tourism along the banks of the Huangpu and Suzhou Rivers, and create new attractions for leisure and sightseeing. In addition to such projects as water tourism and a public pier, Shanghai will build an international cruise terminal and public yacht clubs in order to develop the cruise business. The city will also strive to attract world-famous theme parks and develop Shanghai Tourism Festival into a top global cultural event. Shanghai will also enhance intra-regional cooperation in the Yangtze Delta, and jointly provide services such as the Chinese garden tour in Jiangsu, the natural beauty tour in Zhejiang, and the city tour in Shanghai. It will also work together with Zhejiang and Jiangsu to develop electronic maps for the region and introduce an electronic card, ensuring access to a variety of tourism attractions. Shanghai will take steps to accelerate tourism-related infrastructure development, such as transportation, tourist centers, and road signs for points of interest, so as to build a tourism network for the city and its surrounding regions. Other efforts include introducing regulations on staff annual leave, promoting informatization in tourism, and establishing a holiday tourism prediction and alerting system.

1.5 Information Services Shanghai will rely on information technology to stimulate industrialization, reform the traditional service industry, ensure a balanced ecology, speed up the development and use of public platforms and content resources. In particular, it will focus its efforts on integrating

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and sharing computer network resources and enhancing network security. By 2010, the value added of this industry is projected to reach RMB 100 billion, and the diversity of content services will cover about 90% of similar services in developed countries. Shanghai will become China’s information service center, the core area for international information service groups and one of the most important telecommunication hubs in the Asia-Pacific region. Measures and policies for this industry are mapped out as follows. •

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Shanghai will map out the 11th Five-Year Plan for the development of the information service industry, and push forward the outsourcing of government informatization projects. Alongside the improvement of such essential services as telecommunications, it will prioritize the development of such new services as e-commerce and online games. The municipality and its districts will jointly formulate policies to plan and build information service industrial parks, and cultivate and strengthen a number of brand enterprises. Shanghai plans to build information service platforms for implementing “urban rejuvenation through science and education,” offering public interest and general information services. It will also establish a unified platform for third-party information services to realize resource-sharing. A leading local software-testing platform will be built, to provide product testing and quality control. Computer game development platforms will also be set up to provide product testing and personnel training. Shanghai will continue to strengthen the establishment of a platform for trade, exchange, and the reuse of intellectual property rights for integrated circuit silicon, and optimize the industry chain for integrated circuits. It will also continue to focus on the development of fundamental and strategic software products, and strive to achieve breakthroughs in operating systems and databases. Moreover, it will set up software component libraries and component platforms, to improve efficiency in software development. Shanghai will build a digital television broadcasting platform of global proportions and standards, to provide various services such as digital video, digital audio, and data information. It

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will also set up a broadband multimedia platform and mobile telecommunication platform, and facilitate the production and commercial operation of multimedia content in networkbased education, electronic entertainment. In addition, it will develop an electronic atlas database to achieve automatic vehicle navigation through the use of relevant hardware. Shanghai is planning to establish three value addition chains: an internet-based value addition chain for e-commerce and computer network games; a wireless broadband networkbased value addition chain for mobile terminals, such as on-board vehicle navigation systems and 3-G mobile telecommunications; and a cable network-based value addition chain for digital television. Shanghai will accelerate the building of platforms for electronic administration and digital authentication. It will build a platform for network monitoring and alerting, an emergency backup platform, and a mechanism for supervising information security. Its existing interdepartmental information system or information sharing will be further refined for better resource collection, maintenance, and sharing.

1.6 Specialized Services In compliance with China’s WTO accession commitments, Shanghai will gradually open its own specialized service market and enhance its competitiveness in intermediary services. By 2010, it will form a modern intermediary service framework capable of providing a full range of services. By then, Shanghai’s intermediary services are expected to cover 60 industrial sectors, employ a workforce of 600,000 in a number of leading, well-known, and prominent Chinese enterprises, establishing Shanghai as an important intermediary service base for China and the world. The following measures will be taken to ensure this. •

Shanghai will break industry and sector monopolies, streamline or eliminate impractical local restrictions, abolish all market entry thresholds and designated mandatory services not covered by laws and regulations, creating a fair, open, and standardized market environment.

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Shanghai will work toward the spin-off of intermediary institutions from relevant government authorities. All intermediary institutions engaged in commercial activities will be transformed into independent entities, and those exercising administrative functions will be withdrawn from the market and changed into non-commercial institutions to serve the public interest. When the spin-off and reorganization of economic evaluation-related intermediary services (such as auditing and appraisal) is done, Shanghai will then separate non-appraisal intermediary institutions that serve such public accountability functions from government departments. On the basis of the policies made to attract the headquarters of multinationals, Shanghai will take active measures to attract professional service institutions engaged in such services as accounting, legal services, consulting, and appraisal, and expand the scope of cooperation in professional services. Shanghai will implement pilot projects to liberalize qualification practices. It will guide some professional accounting and legal service institutions that top the list in terms of scale of operation, performance, and branding, to grow into group companies and large institutions with prominent branding in China.

2. Guiding Policies for the Development of the Advanced Manufacturing Industry In 2005, the Shanghai municipal government formulated the Action Plan to Give Priority to the Development of the Advanced Manufacturing Industry. The plan proposed ten strategic actions designed to prioritize the advanced manufacturing industry.

2.1 Stepping up Industrial Technological Innovation Advanced manufacturing is a technology-intensive industry that depends largely on technological innovation for sustainable development. Shanghai’s municipal government has thus proposed the building of a number of national-level industrial technological

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innovation systems for such industries as automobiles, equipment, petrochemicals, top-quality steel, aviation and aerospace, microelectronic design, technology and equipment, photo-electronics, and new flat panel displays, and shipbuilding among others. Technological innovation capability relies heavily on the standard of the intellectual property rights (IPR) system. Therefore, the Shanghai Municipal Government has formulated a strategy to promote IPR and technical standards. Specific measures include encouraging IPR demonstration projects, and speeding up the implementation of technological standards. Enterprises are the main agents of technological innovation, and large enterprise groups enjoy more competitive advantages in Shanghai. For this reason, Shanghai must improve the technological innovation system of large-scale groups and enterprises. In addition, in order to support enterprises for technology innovation, Shanghai has also recommended that public technology platforms for development zones above municipality level should be built, and innovation systems set up to serve small- to medium-sized and private enterprises.

2.2 Speeding up Industry Concentration and Agglomeration in Industrial Parks Shanghai will actively push forward industry concentration in industrial parks. It will locate all new projects in industrial parks, relocate industries involved in the adjustment and optimization of industrial layout from the city center to the parks, and gradually move scattered industrial sites to the parks. The city will improve specialized support services, strengthen industry layout guidance, and promote the development of industry clusters, so as to form a development pattern featuring industry agglomeration, intensive land use, industrial concentration, and integrated management. Shanghai will promote the formation of industry clusters. It will guide the development of industry clusters on the basis of industry chains in order to reduce operation costs, optimize the ecology of the industrial environment, and quicken the formation of industry agglomerations. Relying on the six industry bases and development zones above municipality level, it will enhance the

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development of a number of industry clusters: micro-electronics and information, photo-electronics, automobiles and auto parts, petrochemicals and fine chemicals, top-quality steel, shipbuilding and port facilities, heavy equipment and packaged equipment, aerospace and aviation, and biomedicine, pharmaceutical, and traditional Chinese medicine. Shanghai will upgrade the construction and management level of industrial parks. It will evaluate future projects and industries on trial. Moreover, it will upgrade the environmental protection infrastructure in industrial zones, and improve the mechanism for the construction and operation of environmentally-friendly infrastructures. It will promote interaction between the municipality and the zones, and develop branding for industrial parks.

2.3 Improving the Manufacturing Industry’s Global Competitiveness across the Board Shanghai will stay market-oriented and focus its efforts on fostering sets of consumer goods, equipment, advanced technology, and service brands. It will render particular support to stable and prominent enterprise groups, growing them into future Fortune Global 500 corporations. It will endeavor to form a set of internationally wellknown industries, enterprises, and products, and improve its brand R&D and service capability. Shanghai will identify a number of brands with international reputations and domestic influence, and upgrade and promote these brands through such aspects as product quality, product market positioning, brand culture, production standardization, quality assurance, and brand image. At the same time, it will use the advanced brand management experience of developed countries as a reference in order to set up a robust information-processing platform for these brands and formulate effective brand maintenance and competition strategies. Shanghai will strive to create a good environment for brand development. Firstly, it will create an equitable brand competition environment for enterprises that operate under different forms of ownership. Secondly, it will make full use of the role of brands in propelling industrial development, and establish a brand promotion

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mechanism that benefits the development of pillar industries and contributes to the adjustment in product mix and industrial structure. Thirdly, it will build a brand development service system, ranging from brand publicity to promotion, consulting, operations, and personnel training. Fourthly, it will enhance brand protection and endeavor to crack down on such illegal activities as counterfeit trademarks and brands. At the same time, Shanghai will protect its traditional brands, especially those of small-scale hand-made products.

2.4 Striving to Form a Resource-efficient Mode of Development Shanghai will map out its industrial layout plan for 2010, and cultivate an industry distribution in light of the overall construction of the city and its towns, covering the central city, new cities, new towns, and new residential quarters. It will reinforce intensive land usage, gradually increase the plot ratio in development zones, and continuously improve the output rate of unit land. It will also prohibit land use for new projects that are banned either by the central government or by the Shanghai municipal government. Lastly, it will ensure land availability for those industries prioritized for development. Shanghai will effectively regulate energy and raw material supplies. Firstly, it will strengthen the balanced supply of production factors, ensure a safe energy supply, and formulate a guarantee mechanism for the supply of key commodities and industrial materials. Secondly, it will establish and improve a monitoring and analysis system focusing on economic performance, the import and export of key commodities, and industrial hazards. Thirdly, it will enhance alert systems and contingency plans for major events. It will closely monitor the impact of raw material price changes on industries, put enhanced countermeasures in place, and compile contingency plans. Shanghai will strictly implement environmental protection standards and cancel preferential energy pricing for high-energy consumption industries. It will allow district and county governments a free hand in eliminating unfavorable industries by legal, economic, and administrative means. Enterprises operating with products, technologies, and equipment banned by the central government, as well as those enterprises involving backward technology, high pollution,

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high energy consumption, and serious toxic and hazardous materials, will be closed down, have their operations stopped, be merged or converted to other businesses, and finally eliminated within specified time limits. Meanwhile, the city will give full support to those enterprises that make effective use of their idle industrial land, take the initiative in transforming their business, and provide safe, healthy, and congenial conditions for their employees. Shanghai will pilot clean production and promote comprehensive utilization of resources. The pilot project will be started first in 50 enterprises. In addition, it will establish demonstration parks for a circular economy in the Shanghai Chemical Industrial Park, Zenghejing Development Zone, Wujing Industrial Zone, and Baosteel Group. By 2007, more than 50% of industrial zones will be certified by ISO9000 or ISO 140000, and by 2010, over 80% of them will carry the double certification.

2.5 Speeding up the Internationalization of the Manufacturing Industry Shanghai will endeavor to attract investments of foreign high-tech industries with a view to assimilating and modifying the technologies introduced by these international enterprises. It will encourage foreign enterprises to invest by groups; that is, to invest in a set of upstream and downstream projects. It will also utilize the capital and production expansion of existing projects to attract more foreign capital, and further enhance investors’ confidence, so that foreign capital will grow deep roots in Shanghai. The city will also encourage mergers and acquisitions of Chinese enterprises by international capital so that multinational corporations can play a part in the restructuring and transformation of state-owned enterprises. In addition, it will encourage the development of foreign-invested enterprises, and improve the capital market. Shanghai will rely more on international professional consulting firms and intermediary institutions in its effort to attract foreign capital. In particular, it will apply this strategy with regard to such industrial parks as Lingang Industrial Park, Shanghai Chemical Industry Zone, and the industrial parks in Jiading, Qingpu, and Songjiang.

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Shanghai will encourage suitably mature enterprises to move out of China, raise their standards to be on par with international industries, and achieve integrated growth with global industries. It will also encourage suitable enterprises to merge or acquire overseas enterprises with established brands and core technology, and promote the operation of trademarks as an intangible asset. It will also encourage them to merge with and acquire foreign R&D organizations, so as to gain a leading position in technology. In addition, it will encourage such enterprises to invest in and set up overseas factories, and undertake international processing and trading, so as to gain a firm foothold in international markets. Moreover, Shanghai will explore ways to provide information services on overseas investments, mergers, and acquisitions.

2.6 Advancing the Production Service Industry Shanghai will prioritize the development of ten key production service industries: R&D, automobiles, packaged services, logistics, design and creation, procurement, shipping, exhibitions, consultations, and vocational education. At the same time, the city will work to shape up ten clusters of production service industries. These include the R&D Service Zone at Zhangjiang, the Technology Service Zone at Caohejing, the Equipment R&D Service Zone at Minhang, the Chemical R&D Service Zone at Caojing, the Science and Education Service Zone at Zizhu, the Auto Service Zone at Jiading, the Business Process Outsourcing (BPO) Zone at Pudong, the Logistics Service Zone at Waigaoqiao, the Logistics Service Zone at Lingang New City, and the Northwest Logistics Service Zone.

3. Policies on Industrial Structure Industrial structure policies promote the optimization, upgrading, and rationalization of industrial structure. They can advance the evolution of industrial structure in accordance with the rules of industrial development and plan for and promote the development of pillar industries on the basis of the advantages and prospects of a country or region in developing certain industries.

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3.1 Policies for the Pillar Industries The following factors should be considered when a country or region chooses its pillar industries. Firstly, a pillar industry should be able to remain at the forefront of industrial and technological development. Secondly, a pillar industry should have resource advantages and good prospects. Thirdly, a pillar industry should be able to expand its existing advantages in terms of technologies and markets. Taking into account the above factors, Shanghai has set its pillar industries for the Ninth Five-Year Plan period: automobile manufacturing, communication equipment, packaged equipment, petrochemicals, steel, and electrical appliances. For the Tenth Five-Year Plan period, its six pillar industries were information, finance, commerce and trade, automobile manufacturing, packaged equipment, and real estate. Setting finance, commerce and trade, and real estate as pillar industries demonstrated that Shanghai’s industrial structure was moving toward service industries as its mainstay. All six pillar industries showed strong prospects for market demand, high technology content, good economic returns, high growth, considerable economic scale, as well as inter-industry correlations. They were the leading industries of Shanghai, and thus represent the city’s core competitiveness. During the Eleventh Five-Year Plan period, the modern service industry and the advanced manufacturing industry will be taken as the key direction for development, and the selection of pillar industries will be changed accordingly. Real estate, which has given great impetus to Shanghai’s economic development, will be taken off the list, since it has completed its pivotal role in the city’s economic progress. Two of the four new industries that received special attention during the Tenth Five-Year Plan period were the aerospace and seafaring industries in the category of modern logistics. After several years of development, the aerospace and seafaring industries have increasingly contributed to Shanghai’s economic development. Thus, they are set to become part of Shanghai’s pillar industries during the Eleventh Five-Year Plan period.

3.2 Policies on Regional Economic Coordination As the core city in the city cluster of the Yangtze River Delta, Shanghai must maintain its economic development in harmony with that of

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other cities in the delta. In order to promote regional economic integration and coordinated development, the Shanghai municipal government has adopted a series of related policies and measures in light of China’s overall strategy and Shanghai’s development needs. Since 2003, it has adhered to a guiding principle of “considering the overall situation, opening up wider, serving the entire country, and seeking common progress through integration.” In recent years, as Shanghai Municipality, Jiangsu Province, and Zhejiang Province have all put forward the strategy of seeking development in the general context of the entire Yangtze Delta region, regional economic integration has gained greater momentum. Agreements have been reached on mutual cooperation and linkage (the Common Declaration) in such diverse areas as human resource, administration of industry and commerce, commodity inspection, and tourism.

3.3 Industry Exit Policy The survival of the fittest necessitates the elimination of the less welladapted. Thus, an effective exit mechanism is necessary for economic development. In a broader sense, an industrial exit policy applies to both declining industries and stable industries which are to be taken off the list of government-supported pillar industries. The exit of these stable industries is frequently due to the fact that the industries in question have fulfilled their key roles in development. If they were to be overemphasized, long-term economic development would be impacted. A typical example is Shanghai’s real estate industry, which once dictated the speed of Shanghai’s economic growth in the Tenth FiveYear Plan period. In the Eleventh Five-Year Plan, real estate was replaced by the aerospace and seafaring industries on the list of pillar industries. In this period, Shanghai will shift the focus of its attention to the modern service industry and advanced manufacturing, and the real estate industry will no longer be in the limelight. For Shanghai, the industry exit policy also involves a shift of Shanghai’s industries to the surrounding regions. With the policy of prioritizing advanced manufacturing and modern service industries in place, Shanghai is also working hard to implement its industrial

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shift plan so as to assure the efficient use of limited land resources. For this, it raised investment entry standards, restructured less favorable enterprises, and gathered advantageous industries. In 2005, eighty disadvantageous enterprises were merged, reorganized, or relocated in the Songjiang Development Zone.

3.4 Policies Encouraging Independent Innovation Independent innovation is the key to achieving the optimization and upgrading of industrial structure and implementing the strategy of “rejuvenating Shanghai through science and education.” To encourage independent innovation, the Shanghai Municipal Government advanced the following policy suggestions in 2005: •

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Developing a national-level industrial technology innovation system featuring independent R&D capabilities. This technology innovation system covers automobiles, packaged equipment, petrochemicals, top-quality steel, aerospace and aviation, microelectronic design, techniques and equipment, photo-electronics and new flat panel displays, shipbuilding and auxiliary services, and biomedicine. Here, key disciplines, well-known professors, doctorate degree programs, state-level laboratories, engineering centers, research institutes, and R&D departments of multinationals, technology centers of major large enterprises will play an important part. Of course, governmental support, in the form of subsidies and investment, is also indispensable. Promoting IPR and technical standards. Firstly, Shanghai will promote demonstration projects for intellectual property rights, ranging from searching to application, utilization, implementation, management, and protection. Secondly, the city will provide vital support to enterprises that are involved in the formulation of international and national standards with a view to gaining the edge of technical competition. Improving the innovation system of large groups and enterprises. Shanghai will increase its competitiveness by enhancing the core technologies of enterprises, building and upgrading their R&D centers, and improving their ability to absorb new technologies and innovate in order to achieve

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secondary innovation. It will also encourage technical innovations through international cooperation, such as merging and acquiring overseas technical teams and research platforms. It will promote close cooperation between applied economics research institutes and enterprise groups, and fully utilize the science and technology resources of central research institutes located in Shanghai. Fostering an innovation system for small- and mediumsized state-owned and private enterprises. Shanghai will assign about 150 small- and medium-sized state-owned and private enterprises as demonstration enterprises, and provide them with focused support and service. Each year, it will push forward the industrialization of a number of science and technology projects in private enterprises. It will also enhance its policy support for model enterprises that possess good market prospects, high technology levels, rich human resources, and exemplary management.

Talent fostering, development, and utilization are crucial to the city’s efforts to uplift the independent innovation capabilities of enterprises. To this end, Shanghai compiled the Directory of Human Resource Development in the Key Fields of Shanghai in 2005, highlighting six fields in human resource development: culture, finance, biomedicine, new materials, electronic information, and port navigation. The directory calls for efforts to attract and train talent in light of actual industrial needs, rationalize professional capability assessment systems, improve the quality of talent services, and enhance the awareness of talent security.

4. Policies Supporting the Development of Smalland Medium-sized Enterprises Speeding up the development of small- and medium-sized enterprises is an important strategic measure adopted by Shanghai Municipal Government. Thus far, it has developed a pattern and created a favorable environment for the development of small- and mediumsized enterprises. The Municipal Government of Shanghai issued the Decision to Promote the Development of Small Enterprises in Shanghai

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in 2001, calling on all government departments to work together to bring about a clear improvement to the development environment for its small enterprises.

4.1 Simplifying Procedures for Company Registration Industry and commerce administration bureaus are required to process the application, inform related authorities, carry out parallel examination and approval, and finish within a specified time limit. Online application and a 24-hour voice inquiry system for enterprise registration were also introduced in 2001 to further streamline the procedures.

4.2 Energetically Supporting the Development of Small Science and Technology Enterprises A pilot project is being conducted in Zhangjiang High-Tech Park to lower entry requirements and encourage science and technology enterprises to start up business in the Park. Policy support is extended to high-tech and new technology enterprises regarding the registration and commercialization of high-tech achievements and equity investments in the form of intellectual achievements. Technical and financial support is also given to small science and technology enterprises.

4.3 Promoting the Restructuring of Small Enterprises Firstly, diversified investments should be promoted. A survey of selected industries showed that about 40% of small enterprises from light industry, instruments, electricals, and chemicals have undergone ownership restructuring through absorbing private capital; their internal corporate governance structure has also been improved. Secondly, the city transformed small enterprises with higher degrees of specialized cooperation into specialized supplementary enterprises with competitive advantages so as to form an industry chain. Thirdly, an exit channel has been opened for less favorable enterprises. In 2001, a number of disadvantaged and

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small, state-owned industrial enterprises, with backward technology, low competitiveness, and huge debts, were successfully terminated through such measures as halting operations and bankruptcy.

4.4 Providing Financial Management and Accounting Services to Small Enterprises Aiming to guide small enterprises in financial and accounting management, so as to solve their problems, the financial and taxation departments of Shanghai took the initiative to introduce common management systems such as the internal control system, full-range budget management, and internal management system for small enterprises. On March 12, 2003, the Shanghai Municipal Government published the Provisional Measures on Loss Subsidy to Guarantors of Loans to Shanghai’s Small Enterprises. The implementation of these measures will effectively attract private capital as guarantees for small enterprises. It will not only play a vital role in nurturing mutual guarantee institutions, rationally sharing guarantee risks, and regulating the operation of guarantee institutions, but will also lay a solid foundation for launching re-guarantees and further improving the guarantee system for Shanghai’s small enterprises. Meanwhile, it will give full play to the role of government funds as a lever to support, promote, and regulate the operation of guarantee institutions, enlarge guarantee scale, form a multi-tiered loaning guarantee system, and effectively ease the capital shortfall of small enterprises. At present, Shanghai is gradually building a network for serving small- and medium-sized enterprises. The city has established a citywide information and training service system for small- and mediumsized enterprises, consisting of service institutions at municipal, district, and country levels, and intermediary institutions in the community. In the future, it will focus its efforts to improve policy support, better financial services, upgrade IT-based information services, perfect science and technology services, promote human resource development, and provide better management consulting services.

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5. The Role of Industry Associations in Boosting Shanghai’s Industries As of February 2006, Shanghai had 203 general or special industry associations covering such industries as metropolitan industry, equipment manufacturing, chemicals, medical and new materials, information industry, metallurgy and non-ferrous metals, commerce and trade, and the service industry. These associations serve as a bridge to link government institutions, enterprises, and the community. In particular, all industry associations have actively participated in corporate brand building, compiling industrial development plans, and promoting the strategy of “rejuvenating Shanghai through science and technology.” Shanghai’s industry associations have fully involved themselves in industrial development through offering guidance and services. For instance, the Shanghai Software Industry Association promoted the healthy development of the industry by constantly improving policy and social environments, enabling it to maintain rapid growth in 2005. Annual software sales reached RMB 45 billion, and the number of software enterprises totaled 1,650 by the end of 2005, with a workforce of more than 120,000. Industry associations in Shanghai have actively participated in industry surveys and come up with well-written industrial survey reports, providing a decision-making basis for government departments. For example, the Shanghai Packaging Technology Association, as authorized by the Shanghai Municipal Economic Commission, spent half a year compiling the Survey Report on Shanghai’s Packaging Industry. Collecting industrial statistical data by industry associations is one of the important measures for decentralizing government functions, giving greater authority to associations, and enhancing their service functions. By the end of 2005, a total of 14 industrial and commercial associations had participated in a pilot scheme to collect industrial statistics. They have also developed a relatively complete and scientific set of indicators, established statistics networks, conducted statistical analyses, set up statistical databases, and played an active role in advancing industrial development.

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In order to adapt to new conditions after accession to the WTO, over half of China’s national standards are in urgent need of revision or abolition. Many of Shanghai’s industry associations have taken this opportunity to actively formulate industry standards, so as to provide a decision-making basis for the revision of new national standards. For example, the Shanghai Food Industry Association has undertaken the revision and formulation of standards for products including seasonings, distiller grains, and sesame oil, and has assisted with the implementation of a market entry system for 28 types of food by the end of 2005. It is now an imperative for industry associations to organize enterprises to respond to frequent international claims about antidumping. So far, many industry associations in Shanghai have established and strengthened the industry’s damage alert mechanism, in order to face the new challenges after China’s accession to the WTO. For example, Shanghai’s Industrial and Economic Federation published the 100 Stratagems for the WTO: Volume Three of Reflections on the Role of Industry Associations after China’s WTO Accession. The book contains 100 articles addressing such areas as international trade barriers, China’s policy mechanism, WTO exception rules, the international dispute settlement, China’s WTO commitments, and countermeasures for CEPA, providing policy suggestions for industries facing anti-dumping claims. Taking advantage of Shanghai’s role as an emerging international exhibition center, many industry associations have organized professional exhibitions and influential forums to boost industrial development. Such events have served to enhance the rallying power and influence of these associations.

CHAPTER

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Shanghai Industries and the Yangtze Delta Megalopolis

1. Formation of the Yangtze Delta Megalopolis

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s the global division of labor continues to deepen and change, the world’s economic center of gravity is gradually shifting to the Asia-Pacific region. As a key growth region of China, the Yangtze River Delta region has attracted heavy investments from large numbers of multinationals with its advantages in market size, geographic location, and human and technical resources. Due to enhanced economic strength, the level of urbanization continues to rise, and the scale of metropolitan areas continues to grow. This region has rapidly grown into the Yangtze Delta Megalopolis,1 which has attracted worldwide attention.

Since French scholar Jean Gottmann first introduced the concept of megalopolis in 1957, it has become an important indicator to measure the level of social and economic development of a country or region. Gottmann set five basic conditions and standards for the formation of a megalopolis: firstly, the area in question should have a high density of cities. Secondly, there should be a number of large cities that form their own metropolis, and the main cities should have close social and economic ties with their peripheral areas. Thirdly, the main cities should be well connected with one another through transport systems. Fourthly, there should be a specified total scale for the area, with a population of over 25 million. Fifthly, the region should be a core region for the country, and serve as a hub for international exchange. For details, see J Gottmann, “Megalopolis in the world,” Economic Geography, 1959.

1

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1.1 Definitions The term Yangtze River Delta (Yangtze Delta for short) can be defined in terms of physical geography and geoeconomics. Geographically, the Yangtze Delta refers to the region that is located east of Zhenjiang in Jiangsu Province, south of the Nantong– Yangzhou Canal, and north of Hangzhou Bay in Zhejiang Province. It is a natural alluvial area created by sedimentary deposits from the Yangtze and Qiantang Rivers, and covers an area of about 50,000 square kilometers2 of the plains in the middle and lower reaches of the Yangtze River. In terms of geoeconomics, it encompasses 16 cities from Jiangsu and Zhejiang Provinces, as well as Shanghai Municipality. Its geoeconomic size is twice that of its geographical size. Geoeconomically, the Yangtze Delta includes the entire Shanghai municipality, the central and southern parts of Jiangsu, and the northern and eastern parts of Zhejiang. The region has an area of 100,000 square kilometers, about 1% of China’s total, and a population of 75,340,000, about 6% of China’s total. Specifically, the Yangtze Delta economic region includes: the entire Shanghai municipality, Suzhou, Wuxi, Changzhou, Nanjing, Yangzhou, Zhenjiang, Nantong, and Taizhou in southern and central Jiangsu, and Hangzhou, Huzhou, Ningbo, Jiaxing, Zhoushan, Shaoxing, and Taizhou in northern and eastern Zhejiang. Facing the Pacific Ocean, the Yangtze Delta forms the midway mark of China’s coastline. With access to both the river estuary and the East China Sea, it benefits from both the “Golden Coast” and the “Golden Watercourse.” Under China’s multi-faceted openingup strategy, the east coast and the Yangtze River economic belts, spanning from east to west, together form a closely linked T-shaped area, and are and will continue to be a key area for development for many years to come. The Yangtze River Delta is located right at the junction of the “T” shape. Its superior geographic location— connecting the hinterland of the Yangtze River Valley to the international market—and China’s overall opening-up strategy have enabled the delta to become China’s largest core economic region (see Figure 5.1). 2

Quoted from Ci Hai, 1999 ed., p86.

Shanghai Industries and the Yangtze Delta Megalopolis Figure 5.1

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Geographical scope of the Yangtze River Delta

YANGZHOU

TAIZHOU NANTONG

ZHENJIANG NANJING CHANGZHOU WUXI

SUZHOU SHANGHAI HUZHOU

JIAXING

HANGZHOU

ZHOUSHAN SHAOXING

NINGBO

Source: http://baike.baidu.com/pic/5/1145940585028767.jpg

1.2 Features In the Yangtze Delta region, cities of different sizes, standards, structures, and functions are closely linked by networks of transportation, commodities, technology, capital, talent, and information. These cities and their peripheral areas are tied up by the division of work, and improved through mutually supplementary resources, inter-city communication, and internal competition. With greater complexity and continued flux in the global division of labor, and the gradual shift of the global economic center of gravity toward the Asia-Pacific region, the Yangtze Delta Megalopolis has become one of the six megalopolises, the other five being the New York

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Megalopolis, the Great Lakes Megalopolis, the Tokyo Megalopolis, the Paris Megalopolis, and the London Megalopolis. Economic aggregate Since China’s opening-up and reform, the Yangtze Delta region has experienced rapid economic growth, gaining an increasing share of China’s total GDP. In 1978, the region had a GDP of RMB 64.577 billion, accounting for 17.28% of China’s total of RMB 362.41 billion. The GDP for this region experienced a decline in its share of China’s total GDP from the beginning of China’s opening-up and reform up to 1991. After 1991, this trend reversed: the region’s share began to rise and a healthy growth in its economy continued, particularly after 2000. The region’s GDP rose from RMB 1,917.02 billion in 2000 to RMB 2,810.66 billion, representing an annual growth of 11.81%. In 2003, the GDP of Shanghai, Jiangsu and Zhejiang contributed to 29.8% of China’s total, a significant increase of 13.3% from 1991. In the first half of 2004, regional GDP was RMB 1528.5 billion, making up 26% of China’s total GDP of RMB 5877.4 billion in that period, 8.2% higher than that of 1978 (see Table 5.1). In short, the region contributes to about one-third of every percentage point of growth in China’s economy. With the revival of the Yangtze Delta, a series of positive changes have begun to take place in the economic structure of Shanghai, Jiangsu, and Zhejiang, enabling them to play an even more productive role as the engine for China’s reform and development (see Figure 5.2). Regional competitiveness Since China’s opening-up and reform, the economy of the Yangtze Delta has grown rapidly, its economic strength has significantly improved, its level of urbanization has been raised, and the scale of its megalopolis has constantly expanded. As a result, the delta’s competitiveness has increased continuously since the 1990s, enabling it to become China’s leading economic development area. From 1990–2004, the Beijing-Tianjin-Hebei region showed a slight improvement in competitiveness while the Pearl River Delta region saw little change. By comparison the Yangtze Delta’s regional competitiveness showed an overall sustainable upward trend.

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Table 5.1 Proportion of the Yangtze Delta region in China’s GDP (1978–June 2004) China’s total GDP (RMB 100 mil.)

Yangtze Delta’s GDP (RMB 100 mil.)

Proportion

1978

3,624.10

645.77

17.82%

1980

4,517.80

811.37

17.96%

1985

8,964.40

1,546.06

17.25%

1990

18,547.90

3,070.94

16.56%

1995

58,478.10

11,142.61

19.05%

2000

89,403.60

19,170.22

21.44%

2001

94,346.40

21,210.90

22.48%

2002

102,398.00

23,836.51

23.28%

2003

116,694.00

27,902.61

23.91%

2004 (First half)

58,774.00

15,285.00

26.0%

Source: 1. Statistical Data for 50 Years of New China, Beijing: China Statistics Publishing House, 1999. 2. China Statistics Almanac 2003. 3. Communiqué on Statistics of China’s National Economy and Social Development, China Statistical Information Web. 4. Industrial Map of the Yangtze River Delta (2005), Shanghai: Fudan University Publishing House, 2005.

Figure 5.2 % 25 24 23 22 21 20 19 18 17 16 15 1978

Proportion and contribution of Shanghai, Jiangsu, and Zhejiang in China’s GDP 35 30 25 20 15

1983

Proportion in GDP

1988

1993

1998

10 2003

Contribution to China’s GDP Growth

Source: Wan Bin, Development Report for the Yangtze River Delta Region in 2005, Beijing: Social Science Documentation Publishing House, 2005.

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Spatial features of the Yangtze Delta Megalopolis As an aggregation of urban space in a specific region, the Yangtze Delta Metropolitan Circle is a system with internal composite elements that are closely interrelated. Its external physical structure is characterized by axes, circles, and networks, fully reflecting the interaction between components and the system structure as a whole. Transport Axes The cities in the Yangtze Delta Megalopolis are mainly distributed along three transport axes: Shanghai–Nanjing, Shanghai–Hangzhou, and Hangzhou–Ningbo railroads and expressways, forming a zigzag structure, with Shanghai, Nanjing and Hangzhou located at the three nodes. Industries are mainly concentrated along these axes, as well as along the river, the canal, and the coastal areas. Along these axes, cities and towns are evenly distributed, but in high density. On average, there is one city every 30 kilometers, forming a continuous stretch of urbanized areas. The industrial zones of most cities and small towns (particularly in the Suzhou-Wuxi-Changzhou area) stretch along the railroad, the canal, and the expressway, forming a “traffic corridor” for city distribution systems. From the perspective of inter-city links and the diffusion effect, the zigzag-like layout of these cities, with Shanghai at its core, has three basic dispersion routes (see Figure 5.3): • • •

North Route: Shanghai → Suzhou → Wuxi → Changzhou → Zhenjiang → Yangzhou → Nanjing South Route: Shanghai → Jiaxing → Huzhou → Hangzhou → Ningbo East Route: Shanghai → Shaoxing → Ningbo → Zhoushan Circles

Shanghai leads the Yangtze River Delta with its robust economy. It serves as the source of economic stimuli and the center of gravity for industrial distribution. A physical concentric framework of the megalopolis has taken shape around Shanghai based on economic relationships and the distance from Shanghai.

Shanghai Industries and the Yangtze Delta Megalopolis Figure 5.3

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Distribution of core cities in the Yangtze Delta Eight cities in Jiangsu along the Yangtze River Taizhou

Yangzhou Zhenjiang NANJING

Nantong

Changzhou Wuxi Suzhou

Yangtze Estuary SHANGHAI

Huzhou Jiaxing HANGZHOU

Hangzhou Bay Zhoushan

The Small Yangtze Delta Shaoxing Scope : 15 core cities Area : 99, 610 square kilometers Population : 72.4 mil. Six cites on Hangzhou Bay rim

Ningbo

Source: Yangtze Delta Industry Atlas—2005, Shanghai: Fudan University Press, 2005.

Firstly, if GDP is used to evaluate the megalopolis’ total economic output, its cities can be divided into three concentric circles around the pole of Shanghai, the outer ring being the weakest in terms of economic strength and connectedness with other areas (see Figure 5.4). Shanghai’s economic scale ranks top among all the cities in the region, in terms of such key economic indices as GDP, per capita GDP, total fixed asset investment, and local fiscal income. The inner ring around Shanghai includes Suzhou, Wuxi, Hangzhou, Ningbo, and Nanjing. This layer has a large portion of tertiary industries (about 40%), with less than a 10% share of primary industry. Its village and township enterprises are well developed, and are generally the circle’s

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Circular distribution of cities in the Yangtze Delta Zhenjiang

Yangzhou Nantong Nanjing 3

2

1 Hangzhou

Huzhou

Shaoxing

Taizhou

Changzhou Wuxi

Shanghai Suzhou 1

2

3

Ningbo Jiaxing

Zhoushan

economic pillars and sources of fiscal income. With regard to major economic indices, these five cities are almost on par with Shanghai and obviously surpass other cities in the region. As core cities in the megalopolis, they exert some degree of economic radiation effect on their neighboring cities and even beyond, helping to formulate secondary city clusters, such as the southern Jiangsu city cluster centered round Suzhou, Wuxi, Changzhou, Nanjing, Zhenjiang, and Yangzhou as one center, and the Hangzhou Bay rim city cluster with Hangzhou and Ningbo as another center. The second ring around Shanghai consists of Jiaxing, Shaoxing, Changzhou, and Zhenjiang. The industrial structure of this particular circle is based on the descending order of priority of the secondary, tertiary and primary industries, with a per capita GDP of about US$1,800. This area’s industrial sector has grown quickly, and is mainly focused on machinery and electronics. Serving as regional central cities, their influence is limited to their own administrative boundaries. However, they do have some influence on small cities and towns in their hinterland. The third ring comprises Yangzhou, Nantong, Huzhou, and Zhoushan. The economic structure here features a relatively low

Shanghai Industries and the Yangtze Delta Megalopolis Table 5.2

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Distance-based circular structure of the Yangtze Delta Megalopolis

Circle

Cities

Distance from Shanghai (km)

1

Suzhou, Jiaxing

50–100

2

Wuxi, Nantong, Huzhou, and Ningbo

100–150

3

Changzhou, Hangzhou, and Shaoxing

150–200

4

Zhenjiang, Yangzhou, and Nanjing

200–300

standard of industrialization, with more than 10% dedicated to primary industry, and little economic influence on surrounding cities. Nevertheless, these cities have some ability to assimilate and adapt to external influences. They fall into the “average cities” category. Secondly, the Yangtze Delta Megalopolis, with Shanghai as its center, can be divided into four basic circles according to their distance from Shanghai (see Table 5.2). As a general rule in transport economics, marginal flow cost is a positive function of transportation distance. Longer distance means higher marginal flow cost. Therefore, as the distance from Shanghai increases, the radiation effect received from Shanghai will progressively decrease.

2. Industrial Division of Labor in the Yangtze Delta Megalopolis Historically, the Yangtze River Delta is a relatively integrated economic region, with close intra-regional economic ties. The progress of its regional economic cooperation since opening-up and reform can be roughly divided into three stages: •

The first stage: voluntary cooperation During the early to mid 1980s, the Yangtze River Delta entered a new phase of across-the-board industrialization, where the geographical distribution of production factors began to shift from centralization in cities to an equal flow into both urban and rural areas. Town and village enterprises

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•

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boomed, creating a unique rural industrial development mode. In this period, large numbers of technically skilled workers from Shanghai flocked into medium- and small-sized towns and rural areas in the Yangtze River Delta to provide technical and managerial support for the industrialization of these areas. This voluntary flow of human resources was the first wave of regional cooperation in the Yangtze River Delta. The second stage: joint promotion by enterprises From the late 1980s to the early 1990s, some mediumand small-sized cities rapidly emerged, growing faster than even the cities of Shanghai, Nanjing, and Hangzhou. As a result, city clusters began to form along the railroads. In this context, state-owned enterprises and other industrial and commercial enterprises in Shanghai began to seek business expansion in other cities and rural areas in the Yangtze River Delta, establishing subsidiaries for spare parts and creating raw and auxiliary material bases, OEM, and associated companies. The governments at various levels and various economic entities in the Yangtze Delta also cooperated with Shanghai’s industrial enterprises. A rudimentary industrial distribution system was set up, based on an across-theboard industrialization strategy and influenced by both the planned and market economies. Shanghai had large numbers of all kinds of associated businesses distributed in other cities and rural areas in the Yangtze Delta, and established a preliminary vertical division and collaboration system. With increasing economic strength and the flow of foreign capital and technologies into medium cities in the Yangtze Delta, Shanghai’s relationship gradually weakened with other areas in the Yangtze Delta in the vertical division of labor. Subsequent parallel industrial development led to a highly identical industry structure and homogeneous competition. The third stage: joint promotion by market and government In the mid to late 1990s, economic cooperation in the Yangtze Delta experienced sweeping changes thanks to economic transformation, industrial restructuring, and strong foreign

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capital inflow. On the one hand, both the market and the government encouraged the expansion of economic cooperation, resulting in a gradual change in the mode of cooperation from horizontal collaboration to production factor integration and joint innovation in economic systems. The fields of cooperation were extended from producing, processing, and sales to commerce and trade, finance, tourism, equity, and ecological development, as well as scientific research and the sharing of talent. The cooperation mechanism gradually changed from pure enterprise behavior to one where the government would set up the stage, enterprises would perform, and the market would set the operation rules. The direction of cooperation gradually shifted from a previous one-way flow (i.e. Shanghai to other areas) to a two-way flow. On the other hand, the objective requirement for integrating the division of labor between different industries and different regions in the Yangtze Delta began to take full effect, and the influence of the rationality of economic structure on the whole region’s economic growth rate accordingly became very pronounced. The history and current status of regional cooperation in the Yangtze River Delta have undoubtedly seen a lot of progress and improvement in both the level and composition of cooperation. Economic links between the region’s cities are becoming increasingly tight with the main cities growing rapidly and small- and mediumsized cities making strides. However, there is still much to be desired. Firstly, every city only takes care of its own business due to administrative division, and there is a lack of unified planning, coordination, and control in regional development. Secondly, there is no patent division of labor between cities, resulting in duplicated investment and excessive competition. The improvements in the level of economic development in various parts of the Yangtze Delta aside, the current division of work and collaboration is actually a retrogression compared to the early years when Shanghai and other parts of the Yangtze Delta favored a close vertical labor division and cooperation. Admittedly, the current development status, standards, and requirements have been altered drastically. What the Yangtze

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Delta pursues now and in the future is higher standards and greater efficiency in labor division and collaboration with the ultimate goal of achieving regional economic integration.

3. Industrial Planning in the Yangtze Delta Megalopolis 3.1 Shanghai Continues to Improve the Three-Ring Layout Shanghai will speed up the establishment of a new industrial system in light of the requirements of a cosmopolitan city. It will treat the development of Shanghai and the Yangtze Delta as a regional whole, and follow the general guideline that the city center should be known for its prosperity and suburbs renowned for their strength. It will also take into account the geographical location and industrial correlations when constructing its industrial layout composed of three concentric rings. Within the Inner Ring In the area of high-level service industry, represented by such sectors as finance, insurance, trade, and logistics, will be prioritized for development while a fair portion of metropolitan industry will be retained. The key focus is the development and expansion of Pudong New Area. The development of the modern service industry and strategic new industries aims to further pool economic factors, enhance Shanghai’s position in economic development, and make Pudong Shanghai’s most global, multi-functional, and modern urban district. Lujiazui Finance and Trade Zone will work to attract regional headquarters of multinationals, and strive to improve factor markets, so as to develop itself into the planned central business district (CBD). Waigaoqiao Bonded Area will accelerate the completion of its four major functions of export processing, modern logistics, international trade, and the transaction and exhibition of bonded goods. Zhangjiang High-Tech Park will stress the development of biomedicine and information industries. The priority for Jinqiao Export Processing Zone will be on such industries as electronic information,

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automobile and auto parts, modern household appliances, and biomedicine. Between the Inner and Outer Rings Shanghai will give priority to the development of high-tech, high value-added, and pollution-free industries in order to improve existing industrial zones. Emphasis will be placed on the three nationallevel development zones of Caohejing New Technology Development Zone, Minhang Economic and Technological Development Zone, and Hongqiao Economic and Technological Development Zone. Caohejing New Technology Development Zone will focus its development on high-tech industries, such as microelectronics, photoelectronics, computers and software, and new materials. Minhang Economic and Technological Development Zone will primarily develop machinery and electrical equipment, modern biological engineering, pharmaceuticals, beverages, and recreational food industries. Hongqiao Economic and Technological Development Zone will prioritize the development of trade, exhibitions, and showcase industries. Outside the Outer Ring Here, the focus will be on primary and secondary industries. The city will spare no effort to develop municipal-level industry zones, and work to improve the economy’s scale and intensity. The construction of the world’s sixth manufacturing base is already underway. According to overall city and industrial development planning, the western suburbs of Qingpu, Songjiang, and Jiading that are connected with the industrial corridor spanning from Shanghai to Suzhou and Wuxi, will highlight the development of automobiles, electronics and communications equipment, electrical machinery, generalpurpose machinery, and clothing industries. Backed by Songjiang Science Park and Export Processing Zone, Qingpu Industrial Park, and Shanghai Integrated Circuit Design and Entrepreneurship Center, this region will cooperate with Zhangjiang High-Tech Park and Caohejing New Technology Development Zone to specialize in chip manufacturing and design, chip packaging and testing, microelectronics R&D, microelectronic equipment manufacturing, raw materials for microelectronics, and other related supplementary

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industries. It will capitalize on the opportunity provided by the construction of Jiading International Automobile Town to develop such industries as research and development for, and manufacturing of, finished vehicles and auto parts, automobile trade, automobile logistics, automobile-related science and technology exhibitions, automobile- and culture-themed tourism, and automobile services. All these measures are being taken to build this region into a worldclass automobile manufacturing base. In the northern suburbs, such as in Baoshan, the city will place emphasis on the development of top-quality steel, such as steel for automobiles, petroleum pipes, plates for shipbuilding, stainless steel, electrical steel, and high-efficiency steel for architecture, so as to build this region into a world-class, top-quality steel base. By making full use of Changxing Island, it will develop cutting-edge, internationally competitive technologies, processes, and materials for shipbuilding, and enhance independent development and innovation of facilities for ships. The eastern suburbs, such as Nanhui, are slated to provide supplementary services for the international airport and deep water port. Heavy and chemical industries will be restricted, but priority will go to the Lingang New City Industry Zone, which integrates advanced manufacturing, modern logistics, R&D services, export processing, free trade, and education and training. In the southern suburbs, such as in Jinshan, effort will be made to forge ties with the heavy chemical industrial bases in Ningbo and Zhapu (Jiaxing), and build a world-class petrochemical and fine chemical base, that will eventually form a heavy chemical industry belt along the rim of Hangzhou Bay. Apart from the above planning measures, Shanghai will step up the construction of its nine municipal-level industrial zones in Jiading, Songjiang, and Qingpu in accordance with a development mode where one industry stands out from multiple industries. This mode aims to achieve differentiated competition and harmonious development, and enhance the momentum of development at district and county level. The Jiading Municipal-Level Industrial Zone will focus on auto parts, photoelectronics information, and environmental equipment manufacturing, while the Songjiang Municipal-Level Industrial Zone will prioritize microelectronics, pollution-free new materials,

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biomedicine, foodstuffs, and healthcare product manufacturing. The Qingpu Municipal-Level Industrial Zone will specialize in information communication, biomedicine, new pollution-free modern textile materials, and pollution-free precision machining industries. The Minhang Municipal-Level Industrial Zone will promote the development of such industries as computers and communications equipment manufacturing, appliances and new materials, and the Baoshan Municipal-Level Industrial Zone will focus on the extended processing of top-quality steel, modern machinery manufacturing, new materials, and heavy container transportation equipment, and other related industries. The Jinshan Municipal-Level Industrial Zone will mainly develop fine chemicals, chemical building materials, and food processing industries. The Nanhui Municipal-Level Industrial Zone will emphasize electronics and electrical apparatus, auto parts, and new building materials. The Fengxian Municipal-Level Industrial Zone will focus on manufacturing electronic communications equipment, power transmission and distribution equipment, and electronics and machinery equipment. Lastly, the Chongming Municipal-Level Industrial Zone will specialize in environmentally friendly industries.

3.2 Jiangsu Works to Implement the Four-Belt Development Strategy By enhancing its cooperation with Shanghai, Jiangsu Province can capitalize on the potential benefits of the latest international industry shifts, in particular, on the accelerated flow of international capital and industry into the Yangtze Delta. The province will step up the development of new and high-tech industries, such as electronic information, biological engineering, new medicine, and new materials, improve its independent R&D capabilities, and increase the proportion of high-tech industry in the industrial economy. It will take steps to develop such basic industries as equipment manufacturing, metallurgy, chemicals, energy, and resource processing. It will utilize appropriate advanced technologies to reshape and upgrade its historically dominant textile, clothing, and light industries. Meanwhile, it will diligently nurture the modern service industry, giving special attention to the production service

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industry, and shape up an international manufacturing base with higher industrial standards. It will adjust its industrial structure by upgrading the high-tech industrial belt along the Shanghai–Nanjing Railroad, accelerating the construction of a basic industrial belt along the Yangtze River, an industrial processing belt along the eastern section of the Lianyungang–Lanzhou Railroad, and an economic belt along the coast. In addition to this, it will strongly promote and optimize industrial clustering and layout, improve development standards in southern Jiangsu, and speed up the industrialization process in northern Jiangsu.

3.3 Zhejiang Strives to Build Three Industrial Belts Based on its resource and industrial advantages, and with the objective of upgrading its international competitiveness and overall economic strength, Zhejiang Province will actively participate in regional economic exchange and cooperation with cities in the Yangtze Delta. Being ready to benefit from the radiation effects of Shanghai and participate in international industry shift, the province welcomes technical and capital inflows from Shanghai and overseas. It will uphold its characteristic development and differentiated competition, step up efforts to drive its textile and clothing industries, move toward the international-style clustering of industries, foster electronic information, modern pharmaceuticals, and other hightech industries, rationalize the development of heavy chemicals by the ports, and develop related modern service industries, so as to form a new industrial system based on expansion and coordination, dynamic optimization, integration and innovation, coherent progress, high efficiency, and low consumption. It will work hard to build itself into an advanced manufacturing industry base. In this base, advanced technology serves as the driving force, high value-added products are the mainstay, and traditional dominant industries serve as a base. Some industries develop on a large scale, possess strong technical innovation capabilities, and show a high level of specialization, a full range of functions, and a high degree of internationalization, while core enterprises are well managed, playing an exemplary role. In order to better coordinate regional economic development, optimize economic layout, promote industrial clustering, and provide space

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for the construction of an advanced manufacturing industrial base, Zhejiang will concentrate its efforts on building three industrial belts along the rim of Hangzhou Bay, along the Wenzhou–Taizhou coast, and along the Jinhua–Quzhou–Lishui Expressway. The Hangzhou Bay rim industrial belt covers six cities (Hangzhou, Ningbo, Shaoxing, Jiaxing, Huzhou, and Zhoushan) along Hangzhou Bay, and the new development areas of these cities, and it also involves the functional areas that are closely related to their industrial development. Focusing on the two cities of Hangzhou and Ningbo, the region will make vigorous efforts to foster electronic information, biomedicine, and other high technology industries. By relying on the port resources of Ningbo, Zhoushan, and Jiaxing, it will also build an international shipping center together with Shanghai, and ensure planned development for such portside industries as petrochemicals, steel, and energy. In addition, it will reshape and upgrade its traditional but high value-added industries, such as textiles and clothing. With its two central cities of Hangzhou and Ningbo as the core, it will accelerate the growth of its own modern service industry in such areas as finance, insurance, information and consulting, modern logistics, science and technology services, and ocean tourism. The Wenzhou–Taizhou coastal industrial belt is located at the southern tip of the central section of China’s developed coastal region, being home to the most dynamic private economy in China, with large numbers of globalized light industries and specialized markets set up in small towns. Moreover, the region boasts flexible mechanisms, abundant private capital, and entrepreneurial innovative spirit. By strengthening economic cooperation with Shanghai and enhancing linked development with the Hangzhou Bay Rim Industrial Belt, it will enhance the trans-regional integration of economic resources, accelerate the internationalization of its economy, and achieve a full range of innovation for its private economy in terms of policy, science and technology, management, and culture. In addition, it will rebuild and upgrade its traditional dominant and favored light industry, appropriately develop high-tech and portside industries, focus on the development of the equipment manufacturing industry, and speed up the construction of international industry clusters that have a high market share, in-house core technology, and an

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international competitive edge. It will also focus on developing three equipment manufacturing clusters focusing on electrical machinery and devices, transportation equipment, and light industry machinery, while restructuring and upgrading six light processing industry clusters that focus on clothing and apparel, household supplies, craft furniture, household appliances, general-purpose machinery, and packaging and printing. It will also foster two new industries— modern medicine and healthcare food, and new materials. The industrial belt along the Jinhua–Quzhou–Lishui Expressway covers the cities of Jinhua, Quzhou, and Lishui, and such counties along the expressway as Pujiang, Yiwu, Dongyang, Lanxi, Longyou, Jiangshan, Changshan, Wuyi, Yongkang, Jinyun, and Qingtian. Based on its ecological and resource advantages, it will strengthen its ties with the Yangtze Delta and step up efforts to attract foreign investment in order to foster such high-tech industries as electronic information and biomedicine. It will also absorb the labor-intensive industries and pollution-free industries relocated from the Hangzhou Bay Rim industrial belt and the Wenzhou-Taizhou coastal industrial belt, and highlight the development of such resource processing industries as organic food, bamboo, timber, and silicon. It will be committed to eco-friendly industries such as hydropower, green agriculture, and eco-tourism.

4. The Radiation Function of Shanghai’s Industries As the central city of the Yangtze Delta Megalopolis in terms of economic strength and scale, Shanghai will inevitably play a role of economic radiation. Shanghai is at the forefront of attracting international investment in the Yangtze Delta. The city leads the region with the largest concentration of foreign enterprises, the largest foreign investment, and the highest investment density. By developing the exhibition industry and promoting the Industrial Exposition and East China Commodity Fair, Shanghai is committed to sharing foreign investment with its Yangtze Delta neighbors. It will play increasingly critical roles as organizer, leader, and bridge in the multi-party joint-investment in, and common development of, the Yangtze Delta Megalopolis.

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Many multinationals now moving into Shanghai are principally taking advantage of the internationally competitive manufacturing resources in Shanghai’s neighboring areas. This movement has led to the establishment of an effective geographical division system for all the cities, where each city receives economic radiation from its adjacent areas. The radiation function of the industries in Shanghai is largely a response to the continuous upgrade, optimization, and adjustment of its industrial structure. Shanghai deliberately differentiates its industrial development from that of its neighboring areas, and continuously disperses certain industries to outlying areas. Over the past few years, Shanghai has started a major industrial restructuring. In the next few years, Shanghai will eliminate or relocate 3,000–4,000 disadvantaged enterprises, leaving clear potential for less developed regions. In 2002, Shanghai invested RMB 10 billion in an IT industrial park in Jiashan of Zhejiang, and initiated the inflow of major electronic information enterprises from Taiwan. In early 2005, Lianyungang set up a special committee to take on industries relocated from Shanghai. Other cities in northern Jiangsu including Yancheng, Huai’an, and Xuzhou, and cities in Zhejiang, such as Huzhou and Quzhou, have also expressed serious interest in Shanghai’s industrial relocation. Currently, an IT industry chain has been formed in the Yangtze Delta Megalopolis. Shanghai has built a high quality industrial chain linking chip design, production, packaging, and testing. Three of China’s four 8-inch chip production lines using technologies below 0.35-μm are located in Shanghai, while the Suzhou-Wuxi-Changzhou region has grown into a production base for IT products. Suzhou has formed a notebook PC and monitor industry chain with an annual output of 12 million notebook PCs, accounting for a quarter of the world’s total output. Wuxi has become a hotspot for investment from Japan, and it focuses on the production of communication and PC parts, while Ningbo has established a cell phone production center, with Bird as the leader. The radiation effect of Shanghai’s industry is also observed in such industrial integration activities as mergers, acquisitions, and shareholding. For example, the Shanghai Automobile Industry Corporation (Group) (SAIC Group) bought Yizheng Automobile Co. Ltd. to develop lightweight cars in light of the demands of small-

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and medium-sized cities and rural areas. The Shanghai Clothing Group has established branches in Kunshan of Jiangsu and Shaoxing of Zhejiang, enabling it to compete in the nationwide market. A dozen textile enterprises affiliated to the Shanghai Textile Holdings Group are being moved into Dafeng in northern Jiangsu, and are expected to achieve an annual output of RMB 1 billion after Phase I is implemented. In another example of this trend, a cartoon and animation industrial belt is being formed, with Shanghai acting as the leader and Jiangsu and Zhejiang as the wings. It will become an accelerator for future growth and geographical expansion of the cartoon and animation industry in the Yangtze Delta, and it will also become an “industrial corridor,” covering all the links of the industrial chain and promoting intra-industry interaction. The NanjingShanghai information industrial belt has been established, with the Shanghai–Nanjing Railroad acting as the main line. This railroad extends for about 50 kilometers on each side, and stretches for a length of some 300 kilometers. In this industrial belt, a large number of information industrial parks, with electronic information projects as their main components, are densely distributed, with annual sales of above RMB 10 million. These parks are Suzhou High and New Technology Development Zone, Suzhou Industrial Zone, Nanjing Jiangning Development Zone, Wuxi High and New Technology Development Zone, Kunshan High and New Technology Development Zone, Wujiang Development Zone, and Nanjing Zhujiang Road Science and Technology Park. Shanghai should abandon its previous parochial outlook on moving its labor-intensive traditional industries with high pollution, high energy consumption, high material consumption, low value added, and low technology content to less developed regions. Instead, it should adopt an across-the-board, hierarchical industrial shift strategy. Shanghai’s creative, growing, mature, and declining industries are all affected by the new industrial shift, particularly the last three. The city should expand and relocate those industries that are at a rapid growth stage and those at a mature stage. It should relocate most of its mature industries and almost all of its declining industries. With regard to the destination of relocation, it should vary the time and method with different regions at different levels of development.

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5. Internationalization and the Competitiveness of Shanghai Industries As the core city of the sixth megalopolis in the world, Shanghai has always been at the forefront of internationalization and openingup. Interaction with other cities in the Yangtze Delta can optimize Shanghai’s industrial structure and boost its industrial upgrading. As an open metropolis, Shanghai’s global economic environment provides an even wider platform to accelerate its pace of industrial optimization and upgrading, and offers an external impetus to enhance the competitiveness of its industries.

5.1 A World Manufacturing Center New adjustments in industrial structure are taking place all over the world. The general trend is for agriculture’s proportion to drop, the service industry’s proportion to rise, and for manufacturing industry’s share to either rise or fall depending on geographical location. One noticeable feature of manufacturing’s proportion is that it tends to fall in developed countries and rise in developing countries. Currently, the gravity center of global industrial manufacturing is shifting from the western to eastern hemispheres, and from developed to developing countries. The major regions now on the move are East Asia, including China and Southeast Asia. Within China, the main regions are the Yangtze Delta region with Shanghai at its core, and the Pearl River Delta region with Guangdong at its center. Since the 1990s, the world’s manufacturing industry, represented by multinational corporations, has gradually shifted to China. More than two-thirds of foreign direct investment (FDI) in China has gone into manufacturing. The World Investment Report 2004, released at the UN Conference on Trade and Development, indicated that more than 400 Fortune Global 500 corporations had invested in over 2,000 projects in China, more than 400 of which were research and development centers. Almost all top-brand household appliances are now produced in China. The “Made in China” label can be seen on all manner of products all over the world. Most of these products come from industrial zones that are mainly concentrated in the Shanghai-centered Yangtze Delta region and the Guangdongcentered Pearl River Delta region.

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With current industrial trends, discussions abound on China’s position as the world’s manufacturing center or global factory. Shanghai has also been involved in these discussions, which have increased in frequency and intensity. There are two categories of world manufacturing centers, based on what is produced. The first category refers to consumer goods manufacturing centers, and the second to machinery and equipment manufacturing centers. From this perspective, even if China qualifies for the title of global factory, it still remains a predominantly consumer goods manufacturing center. Although Shanghai has some advantages in machinery and equipment manufacturing, it is still far from being qualified to be a machinery and equipment manufacturing center—a description that better fits Japan now. Fundamentally, for any country or region to become a global factory, it must have a technical or cost advantage. A low cost advantage is largely a result of cheap labor or efficient management. In order to become a global factory, Shanghai and the Yangtze Delta region should still depend on its cost advantage, which is at present mainly due to low labor costs. However, as Shanghai’s economy becomes increasingly globalized, this cost advantage is being eroded, because neighboring regions are now gaining greater cost advantages, which can be clearly seen from the relocation of Shanghai’s processing and manufacturing industries to its neighboring regions over the past few years. Therefore, to maintain competitiveness in its manufacturing industry, Shanghai must heighten its management efficiency to keep the costs down. It must also enhance its technical advantage by developing the latest state-of-the-art technologies to drive manufacturing growth. In addition, international experience shows that when a comparative advantage runs out in a region or country where its technical level has improved, it should use the opportunity to transform itself from a consumer product manufacturing center into a machinery and equipment manufacturing center, so as to avoid falling into a structural trap when confronted by fierce international competition. Undeniably, it is a significant step for a developing country to become the world’s factory, and it is fitting that Shanghai, as China’s largest entry coastal port, should be the gateway in this endeavor.

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5.2 Transnational Procurement Center and Foreign Research and Development Center A current trend of foreign investment in China is for multinationals to set up transnational procurement centers. The establishment of such centers is vital for multinational corporations, directly influencing their overall strategy and layout for overseas investment. After China’s WTO accession, increasing numbers of multinationals have invested more heavily in China, and the country is set to become an important production, procurement, and research and development base. As these companies invest more in China, the localization of their business activities is an inevitable consequence. This localization will filter into management, research and development, talent, production, and procurement. This trend also explains why multinationals have established their regional headquarters, and research and development, production, and transnational procurement centers in China. The establishment of transnational procurement centers plays an extremely critical role in promoting local exports, driving the growth of the manufacturing and service industries, speeding up industrial upgrading, and transforming the region into an international trade center. Therefore, this has become the yardstick of achievement for many of China’s cities. In line with its role as China’s leading business center, Shanghai was planning to build a procurement center for transnational chain store companies as early as the end of 1998, with an aim to secure orders from international chain store networks. In 2002, Shanghai proposed to expand the transnational procurement network from the commercial field to other fields, and build a transnational procurement center for chain stores, multinational manufacturing corporations, and comprehensive government procurement, as well as an online procurement center. In March 2002, the Shanghai Transnational Procurement Promotion Center and Shanghai Transnational Procurement Service Co. were formally established to quicken the pace of attracting regional procurement headquarters or global procurement centers of multinational corporations to set up operations in Shanghai. In the present wave of foreign investment in China, research and development centers have emerged alongside processing and

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procurement centers. Currently, hundreds of multinational companies have set up more than 400 research and development institutes in China. In addition, it has already become a trend for these corporations to establish research and development centers in China, indicating a changed investment strategy. These centers, along with the processing and procurement centers, have created a new situation for foreign investment in China. Since China started opening-up and reform, Shanghai has always been outstanding in terms of attracting overseas capital, and it has become the landing point for foreign and regional investors to make inroads into China. With regard to China’s investment fields, the top three issues for foreign investors are the profitability, security, and liquidity of their assets. Foreign investment enjoys healthy profitability and security under Shanghai’s current system and policies, but liquidity is still an area of concern. The policy barriers mainly include capital account inconvertibility and investment mode restrictions. Currently, foreign investment in China is mostly made through establishing foreign-invested enterprises, imposing substantial restrictions on the liquidity of assets. This issue will possibly be resolved by policy arrangements that allow foreign capital to invest in mergers and acquisitions. So far, China has promulgated several administrative regulations in this regard, which include the Provisional Regulations on Merger and Acquisition of Domestic Enterprises by Foreign Investors, Regulations on Foreign Investment to Set up Investment Companies, and Provisional Regulations on Foreign Investment to Set up Venture Investment Companies. All these regulations have laid an institutional foundation for Shanghai to break through the barriers in question. Shanghai has unique advantages in a number of areas, such as the capital market involving trans-border mergers and acquisitions, the number of regional headquarters for multinationals in relation to the setup of investment companies, and the objective conditions to establish venture investment companies. Shanghai should fully capitalize on its role as an experimental site by introducing and innovating policies that will affect future development in the rest of the country. According to a report by the Shanghai Statistics Bureau in 2005, the scale of the utilization of foreign investment by Shanghai continues to expand, and the quality of foreign investments continues to improve.

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In that year, 4,091 contractual foreign direct investment projects were approved, down 5.6% from the previous year. Contractual foreign investment amounted to US$13.83 billion, up 18.3%, and paid-in capital was US$6.85 billion, up 4.7%. Foreign direct investment expanded at a faster pace in modern service sectors such as commerce and trade, logistics, advertising, and finance. In the same year, tertiary industry absorbed a contractual foreign investment worth US$7.31 billion, up 60.2% from the previous year, and accounting for over 50% of the total foreign direct investment, reaching 52.9% for the first time. Of this total, transportation, warehousing, and postal services attracted a contractual investment of US$1.37 billion, increasing 1.8fold, and the wholesale and retail industry stood at US$1.21 billion, growing 1.2-fold. Annual contractual foreign investment in secondary industry was US$6.51 billion, down 7.9% from the previous year. The proportion of large-scale projects continued to increase. The annual incremental investment in foreign-invested enterprises amounted to US$6.89 billion, accounting for 49.8% of the total contractual direct foreign investment in Shanghai or 11% higher than the previous year. Also in 2005, 307 direct foreign investment projects, each of which involved a total investment of over US$10 million, were approved, down 21.7%. Their contractual investment was US$10.107 billion, up 18.4% and accounting for 73.1% of the total contractual foreign investment in Shanghai. By the end of the year, 120 countries and regions had invested in Shanghai. The economy, driven by the increase of regional headquarters, was greatly developed, and there was an obvious increase in the number of projects with specific functions. Within the year, the number of newly established regional headquarters of multinational corporations, investment companies, and foreign research and development centers amounted to 38, 25, and 30 respectively. At the end of 2005, Shanghai was home to 124 regional headquarters of multinational corporations, 130 investment companies, and 170 foreign research and development centers.

5.3 Independent Innovation As modularized production technology has evolved, tremendous changes have taken place in the form of work division between

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different enterprises and countries. In order to cut costs, many multinational corporations have diverted their low value-added production to developing countries. In this wave, China has become the OEM base in which the greater Shanghai area is one of its main strongholds. Based on their comparative advantages, labor-intensive production is distributed in developing countries where salaries are low, while high-tech content and high value-added processes, such as product research and development, are located in developed countries. As a result, there have been frequent industrial product exchanges centered on parts and intermediate materials between developed countries and developing countries in recent years. From this perspective, the competitiveness of Shanghai’s industry remains to be further improved. Located downstream in industrial labor division In terms of participation in international labor division, Shanghai’s industries are restricted to the low value-added sectors of the industrial chain. For example, the Microsoft-Intel architecture dominates the personal computer (PC) industrial chain. These two giants snatched 50% of the PC industry’s total profit. Despite their large scales, China’s PC enterprises have low profits because they are mostly involved in processing work. Hardware manufacturers only have a profit margin of about 2%, so price wars become the main means of competition in the industry. Shanghai is currently at a critical stage of upgrading its industrial technology. On the one hand, Shanghai’s industrial development has reached a stage driven by leading technologies and knowledge, where the per capita GDP amounts to US$5,000. However, looking at global industrial labor division, there are five stages in the industrial chain: research and development, core components manufacturing, parts manufacturing, assembly, and sales. China’s manufacturing industry (including Shanghai) still remains at the third and fourth stages, characterized by low value added. Facing accelerated economic globalization, China’s current independent innovation capability is not sufficient for the next round of rapid industrial growth. The goal of securing a sizeable share in the high-value zone of global manufacturing will give impetus to the upgrading of Shanghai’s

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industrial structure, and pave the way for further development in the service industry. Currently, Shanghai only serves as a commission processing and manufacturing base operating under the OEM (Original Equipment Manufacture) production model. OEM is aptly described by Chinese enterprises as “stick-the-brand-on production.” In other words, the brand owners do not directly engage in production. Instead, they focus on product research and development, planning guidance, sales channel control, and brand promotion. They assign actual production to other enterprises, and simply attach their brand names or trademarks to the end products. The country’s advantageous conditions, such as a vast market, low costs, and large numbers of qualified talent, have made China the first choice for this new round of industrial relocation, with the greater Shanghai area as a key region in this shift. A commission-based processing model for a global factory is also known as a non-technical innovation global manufacturing center. The production mode of this type of processing is determined by its low profits and low innovation capability. Although a commissionbased processing global factory is an inevitable stage in economic development for developing countries, this does not preclude any opportunity for upgrade. As the scale of manufacturing grows ever greater, there will be an increasing demand for localized research and development and design. In other words, it is possible to convert a non-technical innovation manufacturing center into a technical innovation manufacturing center. This is more or less in line with the key strategy of rejuvenating Shanghai through science and technology. The Shanghai Municipal Government has highlighted the need to improve its independent innovation capability and enhance the core competitive strength of enterprises, so as to propel Shanghai’s industry to an upstream position in the international industrial chain. Shanghai will ultimately rely more on technological advancement to achieve its goal of transforming itself into an international shipping, financial, trade, and economic center. A comprehensive study on the history of modernization shows that countries that come late to industrialization typically experience three stages in building competitive advantages. At the outset, their economic development

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in the first stage mainly depends on resource consumption, and they create a degree of competitiveness by introducing and adopting technologies. As the economy grows, and per capita GDP surpasses US$800, their economic development moves into the second stage of development, in which investment becomes one of the main driving factors for economic growth, science and technology contribute more to the economy, and technological advancement is mainly achieved by introducing new technologies, with some innovations still based on the assimilation of imported technologies. At this stage, the formation of economic competitive advantage principally depends on continuous improvement in the work force and labor productivity. When the per capita GDP exceeds US$5,000, their economic development enters the third stage where the commercial and labor cost of economic activities continues to increase, resulting inevitably in decreased competitiveness. Therefore, in the third stage, economic growth is heavily reliant on independent innovations in such areas as science and technology and the commercial mode. Innovation gives tremendous impetus to the further optimization and adjustment of industrial structure and brings into full play the advantage in human resources. It also helps increase the value added of products and significantly improve labor productivity. Shanghai’s modernization is at a pivotal point of moving from the second to third stages, and the upgrade of its industrial competitiveness will increasingly rely on independent innovation. Therefore, Shanghai has formulated the strategic policy of rejuvenating the city through science and technology, and this is the inevitable choice for Shanghai’s economic development. Fostering independent industrial innovation capability Years of development have brought some high-level industrial advantages to Shanghai. These are specifically reflected in the following: •

The intensive advantage of high-tech industry. Since the 1990s, based on its comparative advantage, Shanghai has deliberately developed industries with high-tech content, a sharp competitive edge, and a vast market. Aiming to emulate the global orientation of high-tech development, Shanghai has started to develop large intensive high-tech

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belts, and has formed a modern multifunctional high-tech industrial base comprising inegrated circuits, biomedicine, and computer equipment manufacturing clusters. The advantage in complete auxiliary systems for the development of large-scale projects. Shanghai’s strategic adjustments in its industrial structure, and its vigorous efforts to introduce and foster advanced technologies so as to transform and upgrade the traditional manufacturing industry, have given a huge boost to its industrial optimization and upgrading. It has formed a comprehensive regional industrial entity supported by large industries and projects. The leading advantage in functional industries. Since the 1990s, Shanghai has quickened its pace in expanding the tertiary industry. Functional industries, represented by the modern service industry, have become an important driving factor in Shanghai’s efforts to become international shipping, trade, financial, and economic centers. Shanghai took the lead in launching such service sectors as finance, foreign trade, modern logistics, and research and development, bringing about the rapid development of production-oriented service sectors such as legal services, agencies, exhibitions, process design, and management consulting.

In addition, Shanghai is the top region in China in terms of comprehensive enterprise innovation capability. The role played by enterprises in the technological progress of a whole society is obvious. In 2002, enterprises of various types in Shanghai accounted for 59.6% of the city’s total research and development expenditure, a substantial increase of 39.4% from 1990. The creative capability of Shanghai’s industry in science and technology has improved remarkably compared to the planned economy period. Moreover, Shanghai has fostered a number of advantageous enterprises with core competitive ability. Examples include Shanghai Automotive Co. Ltd., Baosteel Limited, Shanghai Construction and Engineering Co. Ltd., Shanghai Lujiazui Finance and Trade Zone Development Co. Ltd., Shanghai Guangming Dairy Co. Ltd., Shanghai Pharmaceutical Co. Ltd., and Shanghai Pudong Development Bank Corporation for the finance industry. These enterprises have shaped their core

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businesses and products to reflect their higher market share. They have fundamentally or partially grasped the core or critical technology for these products, thus enjoying greater competitiveness than other enterprises. In addition, those enterprises with a strong science and technology innovation capability generally place emphasis on new product development, and have a larger percentage of engineering and technical professionals in their work force, as well as a higher research and development investment rate. The majority of Shanghai’s enterprises, with their current resources and ability, still lack some of the conditions required for fostering core competitive strength and competing in the global market. On the whole, Shanghai’s enterprises do not have a strong research and development capability and own relatively fewer core products. Most of them are currently at the stage of absorbing technology. In terms of key technologies, it is still very difficult for these enterprises to compete with foreign companies that possess cutting-edge technologies. Meanwhile, Shanghai’s enterprises are also hindered by such problems as a lack of critical talent, a neglect of fundamental research, and a serious imbalance in research and development capability between different enterprises in different industries, operating under different modes of ownership. Although scientific research expenditure for Shanghai’s enterprises is among the highest in China, it still falls behind Guangdong and Jiangsu provinces. Therefore, to enhance the competitiveness of its enterprises and industries, Shanghai must step up its efforts to upgrade its innovation capability. Shanghai lacks natural resources and has a small geographical area. Only by relying on high value-added innovative ideas and technology can it increase the overall technological content of its industries, and thus transform its industrial development from an extensive to an intensive mode. Shanghai is now working hard to cultivate a system for independent IPR in order to improve the innovative and competitive ability of its industries and enhance the overall competitiveness of the city. In this regard, Shanghai has introduced some measures, such as pooling innovative capabilities in high-tech parks, fostering innovation sources, focusing on core competitiveness of enterprises, and shaping up new innovation entities. It is training innovation

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talent, building up sustainable innovation capabilities for the community, and making the most of its guidance and leadership role in creating an optimum environment for innovation. The 2010 Shanghai World Expo has provided a golden opportunity for the economic development of Shanghai and the Yangtze Delta region. Shanghai will utilize the world’s finest products and technologies to build the venues and associated facilities for the exposition. This will directly benefit the manufacturing enterprises in the Yangtze Delta. The World Expo will be a springboard for technological upgrading in the Yangtze Delta’s industries. In addition, the process of preparing for and hosting the World Expo will require large numbers of qualified professionals They will spearhead Shanghai’s development and aid in the upgrading of independent innovation capability and the enhancing of the competitiveness of Shanghai’s industries.

CHAPTER

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he successful completion of the Tenth Five-Year Plan has laid a solid foundation for the next stage of Shanghai’s accelerating economic growth. The basic framework has been set up to build Shanghai into international economic, financial, trade, and shipping centers. The success of this effort will depend on Shanghai’s continued efforts to optimize industrial structure, develop a circular economy, and build a resource-efficient society by relying on the advanced manufacturing and modern service industries.

1. Future Directions The Outline of the Eleventh Five-Year Plan for Shanghai’s National Economic and Social Development, approved in February 2006, has mapped out the strategic plan for Shanghai’s industrial development, and will serve as the principal document to guide Shanghai’s economic development over the next few years. The general directions for Shanghai’s development are: to uphold the sequence of tertiary, secondary, and primary industries in development, to prioritize development in the modern service and advanced manufacturing industries in line with the overall plan to build a service-oriented industrial structure, to make independent innovation capability the main aim in the upgrading of industrial structure, to raise the standards of its industries through informatization, to promote integrated development between secondary and tertiary industries, and to sharpen its industries’ international competitive edge. The outline

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calls for efforts to speed up the formation of an industrial structure centered on a service economy, from the following five aspects. Prioritizing the development of the modern service industry In the future, aiming at building itself into economic, financial, trade, and shipping centers, Shanghai will ensure that financial, logistics, and cultural industries are backed by informatization systems. Beginning with modern service industry, the city will develop such industries as exhibitions, tourism, specialized services, and community services. Through its large service enterprise groups, Shanghai will work toward bringing high-end talent together, enhancing comprehensive system integration, and undertaking international service outsourcing. It will also seek steady development in such industries as commerce and trade and real estate. Lastly, Shanghai will continuously upgrade the scale and quality of its service industry. Prioritizing the development of the advanced manufacturing industry Shanghai will adopt the following strategies in prioritizing the development of advanced manufacturing: to improve the competitive advantage of its pillar industries, to push forward the technological upgrading of the equipment industry, to further foster and reinforce strategic industries, to capitalize on key areas in growing industries, and to sustain stable growth for its metropolitan industry. Shanghai should seize the opportunities afforded by the rapid flow of global manufacturing into China, and utilize the advantages of its high-end manufacturing industry to step up technological and structural upgrading. The 2010 World Expo will also provide Shanghai with an excellent platform to expedite the strategic distribution adjustments in advanced manufacturing and empower a large number of emerging industries. It will endeavor to upgrade the core competitiveness of its advantageous industries, such as automobiles and equipment manufacturing. The automobile industry will strive to increase the production capacity for home-grown brands. Considerable attention will be given to promoting the development and production of new-energy automobiles, developing the critical auto parts industry with automobile electronics as the core, and

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fostering such automobile-related industries as automobile financing, leasing, sports, and culture. In the equipment industry, the focus will be on such power station equipment as the 1 million kW ultra-supercritical thermal generators, packaged equipment for nuclear power and F-class gas turbines, and on the improvement of the localization level for numerically controlled machine tools, microelectronic devices, track transport equipment, and coal liquefaction equipment, among others. Upgrading the standards of industries based on informatization Informatization plays a strategic role in rejuvenating Shanghai through science and education. The development of the IT industry and its extensive application in economic activities are very important for the optimization of industrial structure. Shanghai will not only develop a large, robust IT industry, but will also utilize information technology to transform its traditional industries. New ideas and technologies will be applied to raise the level of informatization in industries and enterprises. With an eye to financial, logistic, cultural, and other key development directions, Shanghai will adopt information technology to support diverse services and personalized service products, and will expand service scope as well as improve service efficiency. Shanghai will facilitate the combined development of information technology and manufacturing technology for improved intelligence levels of equipment and optimized process flows. The ultimate goal is to raise the standards of the automobile, equipment, and shipbuilding industries. Lastly, it will promote innovative applications for information technology in research and development, production, management, and marketing, and give full support to the development of e-commerce. Enhancing policy guidance for industries The continuous optimization of industrial structure signifies a race for the survival of the fittest. In line with the state’s principle of encouraging, endorsing, restricting, and eliminating in the process of industrial restructuring, and taking a realistic look at its current situation, Shanghai will actively expand its advantageous industries, steadily develop its regular industries, and speed up the elimination of

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its disadvantaged industries. Shanghai will support the development of industries that conform to the city’s vision of the future, particularly those with competitive advantages. It will encourage such enterprises to take part in and initiate the formulation of industrial standards, facilitate regular industries to maintain and create jobs, and achieve optimization and adjustment alongside steady development. Shanghai will constitute and implement stringent standards for technology, land use, energy consumption, and pollutant emissions. Its economic performance will raise market entry requirements, yet it will principally rely on legal and economic means to eliminate enterprises, production processes, and products that have high energy and water consumption, high land use, heavy pollution, and that do not conform to safety standards for production. Further optimizing industrial distribution Modern service industry agglomeration is essential to Shanghai’s future industrial distribution. In particular, the city center will attract more domestic and overseas service organizations and improve its high-end service functions. It plans to capitalize on its historical and cultural resources and industrial architecture to build a number of knowledge-intensive, culturally diversified, and vibrant creative industry agglomerations. In its suburbs, Shanghai will continue to construct a number of producer service industry agglomerations, each with its unique features. The goal is to promote industrial concentration in national- and municipal-level industrial zones and parks. By 2010, the value added from industrial zones at or above municipal level will make up more than 75% of Shanghai’s total. It will focus all its efforts on accelerating the completion of its international automobile town, top-quality steel base, the Shanghai Chemical Zone, national-level microelectronics industrial bases (including Pudong Microelectronics Industrial Belt, Caohejing New Technology Development Zone, and Songjiang Industrial Park), biomedical base, equipment industrial base at Lingang New City, and its shipbuilding base. It will also continue to implement its policy of withdrawing secondary industry and promoting tertiary industry in the city center, speeding up the reconstruction, adjustment, and transformation of long-established industrial clusters such as Yangpu, Pengpu, Taopu, and Wujing.

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2. Open Industries The opening of an industry means not only the opening of the property rights of all enterprises in the industry, but also the permission of domestic enterprises to operate their business overseas. This opening also involves the trans-regional and transnational flow of talents in the industry. The opening of Shanghai’s industries is a result of its constant efforts to pursue an increasingly export-oriented economy. As Shanghai’s economy opens wider to the outside world, the optimization and adjustment of its industries cannot be done in a closed manner within the narrow scope of Shanghai, and transregional integration is a must. This integration is not just a simple outward shift of its industries, but an integration that needs to be completed in the process of regional integration and economic globalization. Shanghai should not only consider the shift away from traditional industries, but also accurately estimate the impact of the new round of industrial shift, led by multinational corporations, on its industry development strategies. In the Tenth Five-Year Plan, the outwardness (namely the percentage of export delivery value in the Gross Industrial Output) of Shanghai’s industries continuously improved, and reached 31.5% in 2005, 11 percentage points higher than in 2000. In the future, Shanghai will continue to open wider, and promote the development of its industries through opening them up. It will strengthen economic cooperation within the Yangtze Delta region, include the service industry as a new field for regional cooperation, and enhance the cooperation and exchange in such industries as financial services and scientific and technological research. It will make vigorous efforts to accept the international industry shift, speed up economic transformation, and accelerate the landscape and functional construction of its industrial zones, so as to create the physical environment for technical innovation and the development of well-managed high-tech sectors. In addition, Shanghai will optimize the policy environment for industry development, enhance IPR protection, and promote the regulated development of the financial market. Shanghai’s open economy will experience a major turn in the future. This refers to a turn from a quantitative mode to a qualitative mode, from overstressing the import and export in Shanghai toward

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serving the import and export in the whole of China, and from relying only on bilateral trade toward attaching equal importance to both bilateral and international transit trade. For related industries, the foreign capital attracted should be able to optimize the industry structure and upgrade the industry level. Shanghai will seek to revitalize foreign trade through science and technology, promote the transformation of the growth mode, implement the export branding strategy, and encourage the export of products with independent IPR and high-tech contents. Meanwhile, Shanghai will step up the efforts to utilize international resources in compliance with the “going out” strategy.

3. Sustainable Industries Economic development is inseparable from the optimization of industrial structure. As the economy grows and per capita income increases, the industrial structure will evolve from one dominated by primary industry into one dominated by secondary and tertiary industries. Shanghai set its priority sequence for industrial development as tertiary, secondary, and primary in 1992, and in 2005, the proportion of its tertiary industry in the GDP reached 50.2%. The move of industrial structure toward an advanced stage is not only the result of economic development and the increase in per capita income, but is also one of the key conditions for sustainable development. Report on China’s Sustainable Development Strategy, published by the Chinese Academy of Science in February 2006, ranks China’s 31 provinces, autonomous regions, and municipalities by their ability to support sustainable development, and Shanghai takes the first place. Shanghai will continue to base its future economic development on the theme of sustainability by optimizing its industrial structure and upgrading its industrial standards. On the one hand, Shanghai will continue to implement the strategic priority sequence of tertiary, secondary, and primary in industrial development. On the other, it should steer industrial structure upgrading toward supporting its objective of developing Shanghai into international shipping, trade, financial, and economic centers. The fact that the advanced

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manufacturing and modern service industries are prioritized is concrete proof of this objective. Advanced manufacturing is a new industry, which involves the amalgamation of such high technologies as information, new materials, automation, and modern management technology, and features interaction with the modern service industry. It represents an industrial mode that conforms to sustainable development. Sustainable development calls for Shanghai to enhance its innovation capability and international competitiveness. The accelerated shift of global manufacturing into China is a golden opportunity for Shanghai to leap ahead in the development and upgrading of its industries. It will seize the opportunity afforded by the 2010 Shanghai World Expo to hasten strategic distribution adjustments for its advanced manufacturing industry, and promote the development and growth of a host of related emerging industries. Interactive development within the Yangtze Delta also offers Shanghai’s manufacturing industry tremendous growth possibilities. The ultimate strategic goal is to develop an advanced manufacturing industrial system that is propped up by high technologies and relies on major industries, large industrial bases, big enterprises, sizeable projects, and top brands, that attaches equal importance to capital- and technologyintensiveness and full employment, that is highly integrated with the service industry, that sustains vibrant small and medium sized enterprises, and that seeks technical innovation, industrial clustering, application of IT technology, international standards, and intensive resource utilization. The modern service industry will be Shanghai’s major driving factor in future sustainable economic development. This is also an inevitable choice for Shanghai, which faces such development bottlenecks as resources and the environment. The future development of Shanghai’s service industry is for IT to be the foundation, finance and logistics the focus, modern service industry agglomerations the breakthrough, and large service enterprises the leaders, so as to form an industrial system that fits a world-class cosmopolis like Shanghai. To this end, Shanghai will take the following measures and steps: •

It will give priority to the development of its information service sector by raising the sector’s standards. By 2010 the

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sector is expected to achieve a value added of up to RMB 100 billion. It will aggressively develop its financial sector and turn Shanghai into an international financial center. By 2010, the value added of its financial sector is expected to reach RMB 150 billion and account for more than 10% of Shanghai’s GDP. It will endeavor to develop modern logistics and build Shanghai into an international shipping center. By 2010, Shanghai’s ports are expected to achieve a container handling of 25 millions TEUs, and its airports an air cargo of 3.2 million tons. It will make a concerted effort to develop its cultural and related industries. By 2010, the value added of the cultural service industry is expected to reach RMB 50 billion, and the value added of cultural and related industries will account for about 7% of Shanghai’s GDP. It will actively develop professional services, exhibitions, tourism, community services, and related industries. It will develop a number of leading service enterprises that carry well-known brands and which are influential in China, forming an intermediary service base that targets both foreign and domestic markets, and turning the city into one of the most prestigious exhibition and tourism centers in the Asia-Pacific region. It will stably develop such industries as commerce, trade, and real estate, promoting the sustainable and sound development of the real estate industry and building a modern distribution system supportive of the integration of domestic and foreign trade.

4. Circular Economy A circular economy is an economic mode aimed to reduce material consumption by following the mechanism of ecological economy and a system integration strategy. It also refers to a mode of economic growth that seeks efficient, intensive, and recycled utilization of resources as well as low consumption, low emission, and high

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efficiency, with the ultimate goal of achieving sustainable development. It represents a fundamental departure from the traditional growth mode that features mass production, mass consumption, and massive wastage. The development of a circular economy paves the way for building a more cost-conscious, resource-conscious, and environmentally friendly community, and makes sustainable development a greater certainty. In order to attain an industrial system that is circular, not only will there need to be a development of new products and improvements in product quality, but there will also need to be close attention paid to the minimizing of raw material consumption, and a more judicious selection of reusable materials. In other words, the selection of industries should enable economic development to move from a priority production mode to a priority service mode. In order to achieve optimum resource reallocation, the circular economy needs to reduce the rate of resource use through the extension of product life and advocate the intensive use of products. Waste utilization, clean production, and pollution control technologies form the technological basis of a circular economy. Shanghai’s sustainable development philosophy is clearly demonstrated in its pursuit of a circular economy in its future industrial development. Shanghai was selected by the State Council as one of the first cities to pilot the development of circular economy in October 2005. For the first time, Shanghai’s Tenth Five-Year Plan devoted a whole chapter to the development of a circular economy and the building of a resource-efficient and environmentally friendly city, demonstrating that the city is committed to tackling sustainable development during the period. To make headway in this regard, Shanghai must place emphasis on both resource-efficiency and development, but priority will be given to resource-efficiency. Driven by technology and policy innovations, Shanghai will actively develop environmentally sound technologies so as to improve the efficiency of resource utilization and form a healthy, civilized, and resourcesaving consumption pattern. To promote the transformation of its economic growth mode through developing a circular economy, Shanghai must endorse the dual-priority industrial development policy, pursue the notion of reducing, reusing, and recycling, and focus on clean production, recycled resource utilization, and reduced

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resource consumption. The city will develop a uniform plan, provide industry-specific guidance, highlight the purpose, advocate a stepby-step approach, initiate pilot projects, and then expand the project coverage. Such measures will help gradually mould a harmonious, sound, and sustainable circular economy and achieve maximum economic benefits with minimum resource consumption, waste emission, and production of environmental hazards. With regard to the industrial sector, Shanghai must develop advanced manufacturing and eco-friendly industries. It should follow the circular economy philosophy in designing production processes, promoting the reuse and recycling of materials and energy, and achieving the dual benefit of economic growth and environmental protection. From the perspective of inter-enterprise recycling, Shanghai should work to develop eco-friendly industrial chains and eco-friendly industrial parks, and change the current open economic flow of resource-product-waste to a closed economic flow of resource-product-waste-resource. This shift in production flow will reduce industrial waste, and turn it into resource or harmless substances during the production process. Shanghai plans to introduce a circular economic structure in two stages. Firstly, by 2010, the city will endeavor to achieve a rate of resource consumption and pollutant emission that is markedly lower than that of the period which saw the rapid rise of the heavy chemical industry. Secondly, after 2010, when economic growth will be mainly driven by the high technology and knowledge-based service industries, Shanghai will strive to maintain resource consumption and pollutant emission at a relatively stable level, achieving steady growth at the same time.

5. Resource-efficient Economy A resource-efficient economy is one where the economy is governed by resource-efficiency rather than by fast economic growth achieved mainly by resource consumption and production of industrial waste. Introducing a resource-efficient economy at this stage demonstrates two key points about current economic development in China. Firstly, increased urbanization and China’s role as the world’s factory have pushed the country toward a heavy

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and chemical industry mode of development. The consumption of and demand for resources will not only cause a domestic shortfall in resources, but will also lead to price hikes in global resources. Secondly, accelerated economic growth since 2003 has been heavily dependent on investment growth, and overheated investment is particularly serious in resource-dependent industries such as iron and steel, non-ferrous metals, coal, and building materials, leading to the government imposing stringent macro control policies. Clearly, the development of a resource-efficient economy indicates that the government is attaching increasing importance to the quality of its economic growth. As Shanghai is a densely populated megacity that is short of natural resources, and that has a limited environmental capacity, it is even more essential for the city to speed up the development of a circular economy and instill resource-efficiency as a principle in its organizations and citizens. For industrial development, adopting a resource-efficient economy involves developing a resource-saving industrial system that has solid economic benefits, low material and energy consumption, high efficiency in resource utilization, and production based on intensive and elaborate operations. A resource-saving industrial system runs counter to the thinking behind a traditional resource-heavy industrial system. As a completely new system, it overcomes many of the setbacks inherent in the old system. The traditional resource-heavy industrial system has some serious setbacks. Firstly, it worsens the problem of resource shortfall and adds to environmental damage. Secondly, it produces large amounts of waste discharge due to a low resource utilization rate, and aggravates environmental pollution. Thirdly, it gives low economic returns. For these three reasons, when a city’s economic development reaches a certain stage, it is imperative for it to turn to a new industry system that is resourceefficient. A frugal economy is closely related to a circular economy. As early as 1999, when compiling Agenda for China in the 21st Century— Shanghai’s Action Plan, the Shanghai Municipal Government made a special mention of building a circular economy and a resourceefficient society. The State Council placed Shanghai on the list of cities to pilot the circular economy in October 2005. Therefore, in its current and future development, the main thrust will be how

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to apply the concept of resource-efficiency in its continuous effort to optimize the industrial structure and shape a resource-saving industrial system. This will have a direct bearing on the city’s goal of harmonizing its economy, environment, and community, and building an international metropolis that is resource-efficient and environmentally-friendly. Energy is the basis and driving force for socioeconomic development, and plays a vital role in economic development and the improvement of people’s wellbeing. Shanghai is ahead of most Chinese cities in terms of total energy consumption and consumption density. Yet, Shanghai lacks energy resources, has a serious shortfall in primary energy, such as coal, oil, and gas, and also experiences a shortfall of electricity in varying degrees. In 2003, Shanghai consumed 1.07 tons of coal equivalent for every RMB 10,000 of GDP, down 30% from 1996. The Shanghai Chemical Zone, one of the pilot circular economy parks, has implemented a five-point integration development mode—product mix, public auxiliary systems, logistics, environmental protection, and management services—in planning, construction, and management, organically combining upstream, intermediate stream, and downstream sections of the production chain. The overall energy consumption for an output of every RMB 10,000 of enterprises in operation is only half of the average level for the same industry, and water consumption is only onetenth of the industry’s average level. However, there is still a big gap between Shanghai and developed countries. With respect to the intensive use of land resources and comprehensive utilization of water resources, Shanghai also faces such problems as low land productivity, wastage of water resources, and a relatively low rate of reuse. Energy resource utilization and environmental protection are included in the Eleventh Five-Year Plan as critical development targets. Shanghai faces the tough task of decreasing the energy consumption per unit GDP to 20% by the end of the Eleventh FiveYear Plan period. Shanghai will start with industrial restructuring in its endeavor to build a resource-efficient society, and this will require intensive reuse of energy resources when developing the advanced manufacturing and modern service industries. The city is determined to improve the standards of energy management by

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paying greater attention to its key energy consuming units and equipment and its unit consumption of key products. Shanghai will encourage its enterprises to adopt new technologies in order to speed up the upgrading of their energy saving equipment and improve their operational efficiency. It will also restrict entry into its industrial parks for enterprises with high energy consumption and high pollution, and phase out existing projects that consume more resources and produce a great deal of pollution. Through such methods as “emptying the cage and changing the bird” and land redemption, Shanghai will promote industrial replacement and tap idle land. At the same time, Shanghai will strongly promote the relocation of factories into industrial parks in order to improve land utilization efficiency, through such measures as revamping established workshops and increasing plot ratios. By readjusting the industrial function of its suburbs and eliminating randomly located industrial sites, Shanghai will accelerate a more planned development for an optimal industrial layout.

Index A

advanced manufacturing industries 17, 69, 102, 159 agriculture ecological 13 export-oriented 13 installation agriculture 12, 13 metropolitan agriculture 13, 17 tourism agriculture 13 aviation and aerospace industry 63, 113

B

Baosteel 85, 97, 116, 155 a flagship enterprise 49–50 a top-quality steel base 73 BP 60, 73

C

Caohejing New Technology Development Zone 26, 68, 70, 139, 162 central business district (CBD) 138 circular economy 116, 159, 166–70 city clusters 118, 134, 136 coal equivalent 170 commercial districts 99 contractual foreign investment/ capital 96, 151

cost advantage 148 creative industries 89, 162

D

Deng, Xiaoping 11, 16, 31, 34

E

economic aggregate 130 eco-friendly city 102 eco-friendly industries 144, 168 eco-tourism 144 emerging industries 13, 76–9 export and processing zones Jinqiao 27 Songjiang 56 electronic information industry 55–9, 68, 69 environmentally-friendly community 167

F

featured blocks 105 Federal Express 86 financial and insurance services 82–5 financial management 123 foreign direct investment (FDI) 147, 151 foreign-invested enterprises 77, 91, 116, 150, 151

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Fortune Global 500 corporations 114, 147 Fortune Global Forum 97

G

General Motors (GM) 44, 50 Shanghai GM 71, 72 go out strategy 104 Gome 92 government procurement 149 Great Leap Forward 19, 29 greater Shanghai area 152, 153

H

Haigang New City 74 Hangzhou Bay 72, 74, 128, 133, 134, 140 Rim industrial belt 143–4 Huahong NEC 70

I

industrial competitiveness 154 industrial layout 11, 19, 26–7, 113, 115, 138, 171 industrial planning 138 industry chain 71, 110, 113, 122, 145 industry exit policy 119–20 Intel 70, 152 intellectual property rights (IPR) 26, 35, 55, 102, 110, 113, 120 International Convention Center 97

K

knowledge-based service industries 168 knowledge-intensive industries 162

L

Lianhua Supermarket 92–4

Lingang New City 74, 105, 117, 140, 162 Industrial Zone 74–5 Industrial Park 116 Lujiazui Finance and Trade Zone 82, 138, 155

M

megacity 169 modes/forms of ownership 114, 156

N

Nanjing Road 99 new economic growth area 25

O

OEM (Original Equipment Manufacture) 59, 70, 136, 152, 153 online procurement 149

P

packaged equipment 13, 40, 43, 51, 54, 114, 118, 120, 161 per capita GDP 133, 134, 152, 154 producer service industry 88, 89, 162 production to sales ratio 46, 47, 48, 52

Q

Qingpu Industrial Park 139 Industrial Zone for Taiwanese Enterprises 70 Quanta 56

R

radiation effect 103, 134, 135, 142, 144–6 regional competitiveness 130–5

Index regional headquarters 103, 106, 107, 138, 149, 150, 151 resource consumption 154, 168 reallocation 66, 167 utilization 102, 165, 167, 169, 170 resource-efficient economy 168–71 resource-heavy industrial system 169

S

Shanghai Automobile Industry Corporation (SAIC) 145 Shanghai Chemical Industry Park 72, 116 Shanghai Electric 53–4 Shanghai International Automobile Town 71, 72, 140, 162 Shanghai Municipal Economic Commission 124 Shanghai Statistics Bureau 150 Shanghai Stock Exchange 83, 103 Shanghai Volkswagen 71 shipbuilding industry 63–7 SMIC 58–9, 70 Songjiang Development Zone 120 Industrial Park 162 strategic industries 63–7 Suning 92 sustainable development 27, 50, 76, 112, 164–7

T

top-quality steel industry 43, 47–50, 68, 113, 114, 120 base 73–4, 140, 162

175

TNT 86 tourism services 98, 109 Transnational Procurement Center 149 TSMC 70

U

UN Conference on Trade and Development 147 UPS 86

V

Via 70 village and township enterprises 133

W

Waigaoqiao Bonded Logistics Park 86, 108 Bonded Zone 70 Wenzhou–Taizhou Coastal Industrial Belt 143–4 World Expo 32, 42, 108, 157, 160, 165 World Investment Report 147

Y

Yangtze River Delta 118, 127–9, 131, 132, 135–7 Yongle 92

Z

Zhangjiang High-Tech Park 26, 122, 138, 139 zone-port interaction 107