Building up

The conventional wisdom on Shanghai is that it is the Asian metropolis of the future: an ever-rising tide of world-class buildings and massive infrastructure coupled with copious foreign investment will make it more than a match for Hong Kong and Tokyo. The hardware is impressive, but Shanghai's software – financial markets, a restricted currency, legal structure – still has a way to go if it is to reach the same level.

There is an air of busy self-improvement everywhere one walks in Shanghai. The slogan for now is "Better City, Better Life." A rejected alternate might have been "Bigger City, Bigger Than Life." New buildings shoot up all around, grand public spaces open, roads and tunnels are constantly being built and fixed, and a new slew of subway lines will make the city even more interconnected.

The city knows it has work to do and has set its mind on getting the job done. The task: reclaiming Shanghai's rightful position as China's world city, a snapshot of the best the country has to offer in terms of business and finance, life and leisure. The deadline: 2010, when the World Expo comes to town.

"The objective of that deadline was to put people on notice," said Bruce Richardson, a strategist at Evolution Securities in Shanghai. "By making it far enough out, they're saying to people 'We're going to be much closer to this goal.'"

Glorious past
Recapturing the riches of its past is a tall, but not unachievable, order for Shanghai. As a treaty port under the auspices of foreign powers beginning in the mid-19th century, it was the key entry point to central and northern China's capital markets. Meanwhile, British colony Hong Kong became the main financial conduit between the world and south China, giving birth to a rivalry that exists to this day.

The competition was thrown off course by the events of China's tumultuous 20th century. After invasion, civil war and revolution in the 1930s and 1940s, Shanghai became the target of the Communist Party's wrath for its decades of decadence under the western influence. Some of the most extreme activities of the Cultural Revolution happened there, and the city continued to bear the government's distrust through Deng's economic reforms of the 1980s.

Aside from some Cultural Revolution spillover in 1967, Hong Kong was mostly untouched by events on the mainland after 1949 and went about its business, eventually becoming Asia's financial hub.

It was not until former Shanghai mayors Jiang Zemin and Zhu Rongji were in power during the early 1990s that the Communist government urged Shanghai to resurrect itself as a preeminent Asian city. Since then, Shanghai has become a magnet for foreign direct investment, contracting about a sixth of China's total inward FDI in 2004.

Setting the stage
The 2010 World Expo has been tipped by all and sundry as the stage on which Shanghai will exhibit the fruits of this investment. Preparations are well underway to accommodate the 70 million visitors expected between May and October of that year. The city is overhauling its transportation infrastructure with a large train station in the southwest and an expanded passenger terminal at Pudong airport to be added to the souped-up subway system.

Shipping will also play a key logistical role in Shanghai's global ascendancy. The Yangshan deepwater port, the first phase of which opened in December, will double Shanghai's cargo handling capacity by 2010 and is poised to take over the title of world's largest port usually held by either Singapore or Hong Kong.

Behind all of this, of course, is the drive not just to make Shanghai a destination city, but also to establish it as the hub for world access to the 200 million-strong Yangtze River Delta (YRD) manufacturing base. China's other industrial power house, the Pearl River Delta (PRD), uses Hong Kong as its channel through which to tap into the global network; Shanghai wants to fulfill the same role for the YRD.

However, achieving this takes more than just a physical infrastructure. Shanghai still falls short in providing the legal and financial systems required to make the money go round. Foreign investors are reassured by Hong Kong's solid financial infrastructure, rule of law and high-tech communications systems – and a workforce that is able to make these services operate efficiently. Even domestic companies have turned their backs on Shanghai's sluggish capital markets in favor of lucrative listings in China's predominant SAR.

"The key here is simply changing regulations so that we create a market instead of a casino," said Richardson. "Then the government has to start listing investment-grade companies."

There is little doubt that the 2010 World Expo will run like clockwork under the gleaming roofs of Shanghai's made-to-measure facilities. But in terms of becoming a global financial hub, the city is still a work in progress.