Draped across seven floors of scaffolding on the Pudong waterfront, a pair of seductive eyes emblazoned on a banner entices the crowds strolling Shanghai's historic Bund to the other side of the Huangpu River. They belong to Thai conglomerate Charoen Pokphand Group, which is finishing a massive US$335m shopping mall, complete with waterfalls, entertainment centres, and food pavilions. CP's chosen slogan, ?the future of Shanghai's spending power, is a boast that may hold some irony when the mall actually opens later this year, but it encapsulates the city.
Less than a decade after Deng Xiaoping made his historic southern tour, marking the emergence of Shanghai as the showcase of the national government, the City above the Sea isn't looking back. Even with America threatening recession, Shanghai's economy continues to hum at near double-digit growth, foreign trade is growing by more than 10 percent this year, and overseas direct investment is digging into its second phase, in anticipation of China's expected entry into the World Trade Organisation.
More impressive, perhaps, the Herculean task of restructuring the city's inefficient state industry is nearly complete, tens of thousands of workers have been laid off and re-employed, and the city has emerged convincingly stronger and more confident. Although not every resident has benefited from the reform, per capita urban income last year rose by 7.2 percent to Yn11,718 and Shanghai became the first Mainland city where per capita gross domestic product exceeded US$4,000. City leaders are now vowing to create 400,000 new jobs over the next five years, while achieving annual economic growth of about 10 percent during the same period.
On an inspection tour to Shanghai last month, Premier Zhu Rongji urged the city to exploit its advantages to speed up the modernisation drive. He urged an acceleration in the use of high-technology to upgrade its industrial base.
Government officials need little persuading to embrace bold new projects. In January, a city-backed transportation consortium inked contracts with a German consortium to build the world's first magnetic levitation railway to ferry passengers at speeds of more than 400km per hour from the city's new airport to downtown Pudong. City officials also are exploring the possibility of building the world's tallest structure, a 1,100 metre Bionic Tower aimed at tackling urban congestion by providing a home for 100,000 people.
The same kind of municipal gusto will be on display later this year when Shanghai becomes the centre of national and international attention, first when the Chinese Communist Party returns to the former foreign concession to celebrate the 80th anniversary of its founding at its First Meeting Hall in July, followed by a gathering of some 7,000 world leaders at the Asia-Pacific Economic Cooperation's annual summit in October.
Overseas businessmen have also been impressed by Shanghai's progress, and many of the world's largest multinational companies are now lining up to base their premier China investments within the city's borders. "Shanghai is different," explains Mr. Dean Ho, an investment consultant who has worked here for the last 15 years. "This is a business-for-business city."
Mr. Philip Murtaugh, chairman of General Motors China, which has partnered with Shanghai Automotive Industry Corp (SAIC) in a US$1.5bn plant making Buick sedans and compact cars, marvels at the "capability" of Shanghai officials. "I think we have established a high level of trust," he says. GM has been so encouraged by its local partnership that it is co-operating with SAIC to acquire a stake in light vehicle manufacturer Liuzhou Wuling Auto Co in Guangxi Zhuang autonomous region.
Shanghai's status as a national showcase, the self-described `dragon's head' of the Yangtze River delta, hasn't hurt either. Among the city's greatest proponents are former senior municipal officials, Chinese president Jiang Zemin, premier Zhu Rongji and vice-premier Wu Bangguo. That has given the city government a leg up as it embraces a handful of emerging industries for the coming decade.
Shanghai, for example, was handpicked to build a sprawling 23 sq km petrochemicals complex on Hangzhou Bay in the city's east. The park will be home to BP Amoco's US$3.5bn ethylene cracker, BASF and Huntsman's US$1 bn complex making downstream chemicals used for making plastics, and Bayer's US$390m polycarbonate project. All of these projects are being launched as joint ventures. BP Amoco is partnering with Shanghai Petrochemical; Huntsman and BASF are partnered with a consortium of five local petrochemical companies, including Huayi, SPC Complex and Gaoqiao Petrochemical Corp; and Bayer is partnered with Shanghai Tianyuan.
In much the same fashion, Shanghai has been chosen to establish the country's largest semiconductor manufacturing base, at Zhanjiang Hi-Tech Park along an 11 sq km stretch of land in Pudong. A premier investment in the area involved a US$1.63bn commitment by Shanghai Grace Semiconductor Manufacturing Co, a venture brokered by Mr. Winston Wong, son of Taiwan's billionaire plastics tycoon YC Wang, and Mr. Jiang Mianheng, son of the Chinese president.
Last year, Shanghai was able to attract a separate US$1.48bn investment from Semi-conductor Manufacturing International Corp, a consortium of overseas chip makers and venture capitalists. The project, headed by Texas Instruments veteran and Worldwide Semiconductor Manufacturing founder Richard Chang, expects to ramp its commitment to US$6bn over the course of the decade (see page 20). Last month, Shanghai Industrial Holdings, the Hong Kong-listed arm of the city-owned Shanghai Industrial Shareholding Co, announced that it had acquired 11 percent of SMIC for US$110m.
Other chipmakers, packagers and designers are expected to follow. Shanghai leaders have said their chip production belt will include more than 10 integrated circuit production lines and 100 companies involved in design, assemble, testing and packaging of chips within five years. Already this year, Hua Hong NEC Electronics Co, the city's flagship US$1.2bn semiconductor joint venture that started operations two years ago, has indicated it is preparing invest another US$1.6bn to build a second chip production line, while US computer giant IBM has announced, it will fork out more than US$300m to build a chip sealing and packaging facility in the area.
In the city's western outskirts, meanwhile, the government is laying final preparations for construction of a self-described international automotive centre, which will spread over 60 sq km around Anting, site of the Volkswagen joint venture with SAIC along with many of the city's auto parts makers. Total investment in the project over the next five years is slated for US$4.2bn. With characteristic ambition, Shanghai officials are promising to spice up the area with exposition halls and a racetrack capable of hosting Formula One racing.
Shanghai mayor Xu Kuangdi believes that "strategic alliances" with powerful foreign multinationals will be crucial for the city as China enters the World Trade Organisation. In a recent interview, the mayor also maintained that Shanghai's geography, industrial base, infrastructure and workforce made the city "the first choice of multinational corporations coming to China." Over the course of the next 15 years, that should help raise by four-fold municipal gross domestic product and per capita GDP, reaching US$240bn and US$16,000 respectively, he said. Importantly, the mayor sees the city's tertiary sector growing to embrace 70 percent of the local economy, having only surpassed the 50 percent mark last year.
That's the kind of talk Somkit Tan likes to hear. The Thai manager, who is overseeing construction of CP's Superbrand Mall, has been deflecting criticism that his project's eyes are much bigger than its market. About half of Shanghai department stores are loss-makers, due primarily to market saturation and a shortage of real spending power. But Tan is undeterred, displaying a confidence shared by many in this city: "Looking at WTO and the changes taking place in Shanghai, the timing is right."
Fab plants set for take off
During his 30 years in the semiconductor business, Richard Chang has seen plenty. But the Texas Instruments veteran and founder of Worldwide Semiconductor Manufacturing in Taiwan says he has never witnessed a project approved as quickly as his current undertaking, a multi-billion dollar chip foundry located in Shanghai's Zhanjiang Hi-Tech Park. "I was involved in more than 10 fab start-ups when I was in Tai-wan and this one is the fastest," Chang says.
Semiconductor Manufacturing International Corp (SMIC) officially broke ground on August 1, only six months after Chang came to Shanghai on his first visit. If all goes according to plan, the company will launch test production this September and full production two months later.
Driving interest in the venture, Chang says, has been a municipal government determined to build a native semiconductor industry in the Pudong new area. The city was able to offer initial approvals within weeks of a contract signing, managing all negotiations with the central government on behalf of the consortium. Senior municipal administrators were behind the rush. "They realised that what we are doing is a win-win situation," Chang explains.
SMIC, itself, is a Cayman Islands-registered company, representing a consortium of 15 partners. Chang describes the partners as a mix of venture capitalists, such as Hambrect & Quist Asia-Pacific, and major chip customers that are either fab-less or looking to expand capacity. None of the partners has domestic affiliations. "We are basically American money and some money is from Hong Kong and overseas," he says.
During its first phase, SMIC is investing US$1.48bn to build two fabs capable of producing 42,000 8-inch wafers a month. As much as 70 percent of the semiconductors will be sold on international markets, even though China continues to rely on imports to nourish its mobile handset and home electronics markets. "The chip market is international," Chang explains. A second-phase US$1.5bn fab is already planned and due for commercial startup in 2002.
Project blueprints call for expansion to six separate phases in total, with total investment of US$6bn. SMIC is also investing several hundred million dollars more to construct self-contained living quarters, complete with schools, clinics and shops, to house several thousand staff and families. That is needed to attract overseas engineers, Chang explains, even if it does smack of old-styled state socialism.
SMIC backers originally thought of bringing the project to Hong Kong, where it was slated to anchor the city's ?Silicon Harbour.? But the SAR lost out when it refused to match the corporate tax benefits offered by Shanghai. They included five years of tax-free operations, followed by five years of 50 percent obligations. To sweeten the offer, Shanghai agreed to start the tax-free period only after SMIC began turning a profit, extending the real life of the no-tax period to seven or eight years.
Although development of the capacity required to make semiconductor manufacturing economical in eastern China may take some time to achieve, Chang believes that Shanghai's abundant electricity and water, along with the city's access to trained engineers, makes its bid to create an electronics base a sure bet. "Taiwan is running out of land and [it] is running out of really qualified workers," he says.