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Shanghai: China's business engine

By Joe Havely for CNN

Shanghai is home to the country's main stock exchange.


Population: 19 m (including 4 m temp. workers)

GDP per capita: $4,500 (China: $840)

GDP growth (2004): 13.5%

Foreign Investment (2004): Contracted: $11.69 bn (+12.6%)

Actual: $6.54 bn (+11.8%)

Source: Shanghai Government/Foreign Investment Service Center

2001: 7.3 percent
2002: 8.0 percent
2003: 9.3 percent
2004: 9.5 percent
2005: 8.0 percent (est.)
Source: IMF
Shanghai (China)

(CNN) -- Shanghai is the birthplace of the world's biggest anti-capitalist political movement.

Today, the Shanghai townhouse where Chairman Mao Zedong and 12 colleagues founded the Communist Party of China is a museum and a place of pilgrimage for polyester-clad tour groups from across China.

It's located in the heart of one of the most exclusive shopping and dining centers in Shanghai, a city that has a daytime population of 19 million people.

In the 21st century, Shanghai is back to doing what it does best -- making money.

In its colonial heyday at the start of the 20th century, Shanghai was a byword for cosmopolitan extravagance and excess: the "Paris of the East" or the "Whore of the Orient -- depending on your point of view.

It was an exciting prospect for the traders and chancers lured to Shanghai. And a humiliating embarrassment for many Chinese.

As one historian wrote, Shanghai was "the most pleasure-mad, rapacious, corrupt, strife-ridden, licentious, squalid and decadent city in the world... Morality, as every Shanghai resident knew, was irrelevant."

With the communist take-over in 1949 all that came crashing to a halt. Shanghai's anything-goes lifestyle was incompatible with the new ways of Mao's People's Republic.

It couldn't be held back for long though.

Strategically located in the middle of the Chinese coast and at the mouth of the Yangtze, an artery into the Chinese interior, Shanghai today has earned a new nickname -- the Dragon's Head.

"Shanghai is really right in the crosshairs economically," says Jeffrey Bernstein, Chairman of the American Chamber of Commerce in Shanghai.

With just over one percent of China's population, Shanghai accounts for more than five percent of China's GDP. Add in the surrounding provinces of Jiangsu, Anhui and Zhejiang -- Shanghai's manufacturing hinterland -- and that share balloons to 25 percent.

Bernstein, who has lived in the city for nine years, says the pace of change and the growth in Shanghai's prosperity has been phenomenal.

"When I first arrived, the talk around the lunch table among local employees was about their dream of car ownership. In five years, they said, they might be able to afford the steering wheel."

Now, he says, almost all of them own their own cars; and the lunch table chat is about buying their own home.

This thriving middle class is the product of a city that has become the engine of the world's fastest growing economy.

Its skyscrapers rival those of New York and Chicago, and if it gets its way, it will soon be home to the world's tallest.

Shanghai's port ships more than a quarter of China's total exports, recently overtaking Rotterdam to become number one in the world in terms of total tonnage handled. And it's not stopping there -- work is well under way to more than triple its capacity.

On the flipside, the sleaze is also back, although not so brazenly as before -- the pink-lit windows of supposed "barber shops" are scattered across the city.

In 2010 the city plays host to the World Expo, the first city in the developing world to do so and two years after Beijing expects to bask in Olympic glory. Shanghai is pulling out all the stops to make sure it isn't overshadowed.

Already in place is the Maglev train line that connects the city to its international airport. It's the world's fastest rail line with a top speed of 434 kilometers an hour.

According to most reports, the Maglev is never likely to recoup the estimated $1.2bn it cost to build. But that's missing the point.

Being the only service of its kind in the world, it's what it says about Shanghai's focus on the future that matters. And it rarely fails to impress the international CEOs flocking to Shanghai's door.

So far, more than 300 of the world's Fortune 500 companies have invested in the city. In April 2005 the American tiremaker Goodyear became the latest in a long line of companies to move its Asia-Pacific headquarters to Shanghai.

"We're seeing a huge surge in membership from companies that see Shanghai and China as a big chunk of their Asia opportunity," says AmCham's Jeffrey Bernstein.

But Shanghai's success is not without its problems.

While the city's fortunes -- along with its skyline -- are rising relentlessly, physically it is sinking into the swampy land on which it was built.

That's resulted in a raft of legislation, restricting new building work and placing strict limits on groundwater extraction.

The city can also be blanketed in thick smog for days on end, and the traffic along the city's main arteries regularly teeters on the verge of gridlock.

Added to that is Shanghai's insatiable thirst for power, which regularly pushes the available limits of supply and has caused periodic blackouts in recent years.

For some observers, the congestion, power shortages and pollution are inevitable signs of Shanghai's breakneck progress.

Government solutions to traffic congestion, for example, seem to involve simply building one elevated freeway on top of another.

But such solutions can only be stop-gap measures. New roads quickly fill up with the cars flooding out of Shanghai's joint venture car factories.

Another emerging area of concern is slowing Internet speed -- an essential tool of modern business.

"The capacity simply isn't there in the network to cope with the demands being placed on it," says AmCham's Berstein. "Already its getting so serious many investors are saying that could impact their decision to invest."

Shanghai is developing fast and it will have to work hard to ensure its success is not its own undoing.

But Bernstein, like most overseas investors, is overwhelmingly optimistic about the city's future. Shanghai's growing pains say more about the sheer pace of growth than the lack of planning, he says.

"You'd be hard pressed to find a city in the world that is better at planning ahead," he says.

One example: the city has no less than 11 new subway lines under construction.

"Most cities look to five- or 10-year plans at most -- in Shanghai they plan 20 years ahead," Bernstein says.

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