Chapter 1
Overview of Shanghai

1. Nature and Geography

1.1 Geographic Location

S hanghaiis located at the head of the richest area in China: the Yangtze River Delta. The city faces the East China Sea in the east, is connected with Hangzhou Bay in the south, and stands on the estuary of the Yangtze River in the north. On the west it borders the provinces of Jiangsu and Zhejiang. Shanghai is in the central section of China's north-south coastline, an advantageous geographic location for transportation. It covers a land area of 6,340 square kilometers.

1.2 Climate

Shanghai has four distinct seasons with a pleasant northernsubtropical maritime-monsoon climate; it enjoys generous sunshine, abundant rainfall, and moderate humidity. The average annual temperature is 16°C.

1.3 Nature

Shanghai is a part of the alluvial plain of the Yangtze River Delta, with an average height of four meters above sea level. Dotted with many rivers and lakes, the Shanghai area is known for its rich water

resources, with water areas accounting for 11% of its total territory. Shanghai has two main rivers, the Huangpu and the Suzhou, and the third largest island in China, Chongming.

2. Social Resources

Education: Shanghai's educational institutions include colleges, universities, middle schools, primary schools, and institutions for adult education, which meet its domestic needs. It also has 30 international schools from kindergarten through high school for children whose parents come from Hong Kong, Macao, Taiwan, and foreign countries but who live and work in Shanghai.

Quality Talent : Shanghai City administers 18 districts, one county, 153 towns, and three townships. By the end of 2005, Shanghai had a registered population of 13.6 million and 17.78 million permanent residents.

Shanghai enjoys a high output per unit of manpower cost because of its skilled workforce, which holds a leading status within China. It has an excellent reserve of human resources and provides an attractive environment to well-qualified people from both home and abroad. There are 50 colleges and universities in Shanghai with 330,000 registered students. By the end of 2001, there were 696,800 technicians, accounting for 10% of the total working population in Shanghai, and more than 1,000 scientific research and development institutions.

2.1 Introduction of Talent

Shanghai has taken many practical measures to attract talent, for instance, by encouraging them to have “flexible flow,” carrying out the household registration system in Shanghai, and issuing a Shanghai Green Card. So far, Shanghai has introduced 32,000 Chinese scholars who have returned from overseas, accounting for 20% of all such talents in China, and almost 50,000 permanent personnel from Hong Kong, Macao, Taiwan, and foreign countries, taking up 40% of all such personnel in China. Besides this, Shanghai has also put forward ten measures to attract high-tech talent and will roll out its new internationalized talent-bidding system in the near future.

2.2 Medical and Health Care

Shanghai possesses more than 4,600 medical institutions, which include 460 integrated hospitals, 26 centers for disease control and prevention, and ten maternity and child health care centers, totaling 70,000 hospital beds. There are over 100,000 professional medical personnel in Shanghai, 50,000 of whom are doctors. Shanghai is continuing to increase its community medical service centers with more than 60 to date in the network. Of the around 80 foreigninvested hospitals and clinics in China, 25 are in Shanghai.

2.3 Transportation

Currently, Shanghai has three subway lines, two light-rail lines, and the first MagLev (magnetic levitation) train line in China. In 2005, its total rail transportation was 233 kilometers. By 2010, there will be 15 city railway lines with a total length of 400 kilometers.

2.4 International Residents in Shanghai

Shanghai hosts more international residents and workers than any other city in China. Over 100,000 foreign residents and workers from 126 countries and 250,000 Taiwanese live in Shanghai. Of these, 35,000 are working.

Three factors have made Shanghai attractive to foreigners: the relatively cheaper housing costs, good facilities for a convenient lifestyle, and most importantly, the prospect of economic development.

2.5 Entertainment and Tourism

Shanghai has a long history resulting in a rich cultural heritage. By 2006, there were 19 key state-level cultural relics, 119 municipal cultural relics, 21 memorial sites, as well as 15 protected heritage sites. So far, Shanghai has preserved historic relics and distinctive gardens from the Tang, Song, Yuan, Ming, and Qing dynasties. These include the Longhua Temple, with a history of more than one thousand years, the Jing'an Temple, and the world-famous Yufo (Jade Buddha) Temple, built during the Three Kingdoms Period. Other places of interest are the Yuyuan Garden noted for its South-of Yangtze style, the Confucius Temple in Jiading, and the Square Tower and Zuibaichi in Songjiang.

Since the 1990s, Shanghai has constructed many world-famous buildings, such as People's Square (honored as an “Urban Green Lung”), the Oriental Pearl Tower within the world's top ten towers, the Jinmao Tower (the tallest skyscraper in China), Nanjing Walking Street, the Shanghai Museum, the Shanghai Grand Theater, and the Shanghai Urban Planning Exhibition Center. Each of these contributes to the aesthetics of Shanghai's urban landscape and skyline.

Operas, concerts, magic shows, and acrobatic displays are performed throughout the year in the Shanghai Grand Theater, the Shanghai Film Art Center, the Shanghai Circus World, and the Shanghai Science and Technology Museum. One can also enjoy firework performances and parades with decorated floats. There are about 20 golf courses and hundreds of fitness centers in Shanghai and its peripheral areas. Some city areas are famous for their bars, for instance, Hengshan Road and Xintiandi, where Shanghainese tradition is integrated with modern lifestyle, attracting many foreigners.

3. Integrated Economy

3.1 Macroeconomic Indexes

Early in the last century, Shanghai was the biggest industrial city in China and the financial center of the Far East. Taking the opportunity to develop Pudong since the 1990s, and through the deepening of its reform and opening-up, Shanghai has realized a sustained, rapid, and sound economic development, with improvements in its economic stability. In recent years, Shanghai has witnessed a two-digit growth in its Gross Domestic Product (GDP), per capita GDP, and per capita disposable income of urban residents. In 2002, Shanghai's GDP exceeded US$65 billion. Its per capita GDP approached US$5,000, a figure expected to reach US$7,500 in 2007. Shanghai has been moving forward with rapid economic development, holding its rate of unemployment at 3% to 5% and the rate of inflation at 2% to 4%.

In 2002, the investment in infrastructure amounted to RMB 58.3 billion, with an annual growth rate of 11% over the previous five years, accounting for 27% of the total municipal investment in fixed assets. Infrastructure investment has focused on municipal construction, transportation, post and communication, as well as public utilities.

3.2 Industrial Development

Shanghai has a robust industrial foundation and strong traditional industries. Its tertiary industry has also been developing rapidly in recent years with an annual growth rate of about 12%. By 2002, tertiary industry accounted for 51% of the total GDP of Shanghai. Compared with other cities that have also attracted intense foreign investment, Shanghai takes a leading position in terms of the added value of industry and tertiary industry. The six major sectors—electronic information, automotive industry, petrochemical industry, refined chemicals, biomedical industry, and complete sets of equipment—account for 58% of Shanghai's gross output value of industry. The five major service sectors—finance and insurance, real estate, transportation, post and communication, and wholesale and retailing—account for 62% of tertiary industry, with the financial sector taking the lead at 21%.

Shanghai has remarkable advantages and is well equipped for industrial development. In the next five years, adhering to the policy of “developing the secondary and tertiary industries together,” Shanghai will focus on developing the six pillar sectors of information, finance, trading, automotive industry, real estate, and package equipment, and actively foster the four emerging sectors of biomedicine, modern logistics, new materials, and environmental protection. It will continue to develop two foundation sectors: topquality steel as one sector and petrochemicals and refined chemicals as the other. The added value of the six pillar sectors will account for 60% of GDP by 2005. The information sector will take the lead with its annual growth of 25%, while financial services will become the core sector, which accounts for 18% of GDP. The boom in trading and logistics sectors will bring new chain business types and informatized management. The 2010 World Expo will bring plenty of investment opportunities for the complete-sets-of-equipment sector.

To upgrade the industrial structure, Shanghai will fully advance the construction of four industrial cluster areas (known in China as “highlands”) in the east, west, south, and north of the city. A production base of high-precision steel will be constructed in the north; an information industry base will be built in the east; a base for integrated automotive industry will be constructed in the west; and a base for the petrochemical industry will be established in the south. These bases contain many investment opportunities. For example, by 2005, the total investment in the information industry base in the east will amount to RMB 160 billion, and that of the petrochemical industry base in the south will reach RMB 100 billion.

4. Foreign Investment

4.1 Survey of Foreign Direct Investment (FDI)

In 1991, China's FDI was only 20% that of the United States, but China exceeded the United States in 2002, becoming the most attractive country for investors around the world. Over the past decade, foreign direct investment in China has increased by 25.4%, while the United States witnessed merely a 7.2% growth. The major reasons for the fast-paced growth of foreign investment include continuous economic growth in China, improved investment environment, competitive labor resources, and China's entry into the World Trade Organization (WTO).

With an FDI growth rate of 36%, 10% higher than the average in China, Shanghai has maintained its lead position in attracting foreign investment over the past decade. By 2002, Shanghai's FDI accounted for 19.3% of the total gross investment in fixed assets.

4.2 Industrial Structure

The tertiary industry attracts 50% of total foreign investment, of which the real estate sector accounts for half within the industry. Due to market access limits, sectors such as post, telecommunication, finance, insurance, culture, and media have attracted much less foreign investment. With the opening-up of related markets, as promised by China upon entry to the WTO, foreign direct investment in the financial sector will increase considerably. The secondary industry investment is mainly seen in the manufacturing sector, which takes up 95% of the total investment, most of it focused on labor-intensive industry along with processing and assembly enterprises, which account for 60%.

4.3 Investment Modes

Wholly foreign-owned enterprises took up only 24% of the total investment in 1991, which in 2002 increased to 70% due to the fast rise of such investment.

4.4 Investment Sources

By the end of 2002, the total investment from Southeast Asia accounted for 50%. Other sources were: Latin America, Europe, and North America, accounting for 19%, 15%, and 13% respectively. A total of 103 countries or regions have, to date, invested in Shanghai. Of these, Hong Kong, Japan, and the United States are the top three.

Investment in Shanghai varies from one country or region to another. The first difference is the scale of investment. The largest single investment was made by the European Union (EU), amounting to US$7.08 million in 2002, while the smallest was from China Taiwan, with only US$1.1 million. The choice of industries for investment also differs. Hong Kong, for example, invests mainly in real estate, the garment and textile industry, as well as trade, while Japan mainly invests in the automotive, semiconductor, and precision instruments industries. The United States mainly invests in the automotive, biomedical, petrochemical, finance, and retail industries. Another difference is the timing of large-scale investment entering Shanghai. Asian countries and regions invested earlier in Shanghai because of geographical proximity and cultural similarities, while European and American countries began investing in Shanghai in 1996.

4.5 Investment Return

The major economic indexes of the three types of foreign-invested industrial enterprises—Chinese-foreign entity joint venture, Chinese-foreign cooperative joint venture, and wholly foreignowned enterprise—are respectively 30% higher than the average level of industrial enterprises in Shanghai in terms of investment return, productivity, and per capita profit. The number of foreigninvested industrial enterprises accounts for more than half of the total industrial enterprises in Shanghai, making them significant economic players.

4.6 Trends of Foreign Investment in Shanghai

With China's accession to the WTO, Shanghai will become even more attractive to foreign investors. Structurally, greater prominence will be given to high-tech industries and the export-oriented economy. Membership of the WTO will also expand the service and trade industries, encouraging foreign-funded companies to invest in the six pillar industries. Shanghai will encourage foreignfunded companies to set up wholly-owned enterprises and holding corporations, and to invest and participate in the restructuring of state-owned enterprises through mergers and limited stock transfers. Strategically, foreign investors will be encouraged to set up regional headquarters, global research and development centers, and procurement centers in Shanghai so that their investment in Shanghai will become more systematic and assume greater strategic importance globally.