Chapter 6
Development Prospects

T 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 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 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 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.

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 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 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 technology-intensiveness 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 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 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 resource-saving 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 resource consumption. The city will develop a uniform plan, provide industry-specific guidance, highlight the purpose, advocate a step-by-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 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 resource-efficient.

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 resource-efficient 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 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 one-tenth 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 Five-Year 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 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.