Home Articles China: The Two Shanghais (part IV)

China: The Two Shanghais (part IV)

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London, New York and . . . Shanghai. When global citizens call to mind the world’s mega-cities in 2010, Shanghai’s Government wants to rank in the very top echelon. Becoming an “international city” by 2010 might sound like a strange goal for a municipality, but foreign entrepreneurs need only look as far as the incentives Shanghai’s government is offering to understand that this is an opportune moment to set up shop in this sprawling metropolis. In the final instalment of his four part series, returning Australian expat Paul Waide delves into the city that is commonly acknowledged as being a window on China’s future.


CORPORATE SHANGHAI

International commuters in Sydney, Singapore or Hong Kong can, if they choose, take a train from the airport to the city centre. In Shanghai commuters travel half the distance on a train travelling at 430 kilometres per hour.

Shanghai is home to the world’s only commercial Maglev train. The Maglev runs from Pudong International Airport to a stop on Shanghai’s regular subway system, where weary travellers haul their bags down an escalator, across a road and then down another escalator before joining local commuters on the subway. It is complicated, but it cuts almost an hour off the commute from Pudong International to downtown and costs only one third the price of a taxi. (As the train hits its top speed of 430 km/h, exhilarated passengers stand up and take photos of the speedometer.)

Shanghai’s infrastructure has developed to the stage where foreigners working for a multinational would find it difficult to distinguish their weekly routines from those in many other capitals. A Hewlett Packard or IBM employee in Shanghai could (and does) carry out very similar functions to counterparts in industrial parks on Sydney’s North Shore or in Melbourne’s East Burwood.

HP, IBM, Alcatel, Citibank and hundreds of others (unfortunately not too many Australian firms) have set up shop in Shanghai because infrastructure has developed to the point where it can act as regional headquarters and because, depending on industry and district, foreign joint-ventures and wholly-owned foreign enterprises (WOFEs) can get massive tax breaks. Massive to the tune of seven years worth of tax-free profits if the company decides to set up in Pudong and operates in target sectors (technology, financial services, professional services, and biomedical science all feature high on the municipal government’s favoured list).

Shanghai’s government aims to turn the city into a hub for everything – information, people and goods – by 2010. With current infrastructure and investment in expanding that infrastructure over the next four years, Shanghai looks set to topple Hong Kong as the gateway to China.

However, as any of the multinational companies that have set up in China will tell you, dealing with the bureaucracy and cultural differences in culture and regulation can be both frustrating and draining.

While Hong Kong (SAR) inherited its legal system from the British, much of the law regulating business in Shanghai and the rest of mainland China is yet to be written. While travellers on Shanghai’s Number 1 and Number 2 Metro lines might have understood the “Society obeying the rule of law” messages plastered across carriages for six months, the fact that China has been under communist rule for fifty years has taken its toll on the legal profession. China’s best and brightest rarely pick law as a profession. Even if the courts were staffed by China’s finest, laws that clearly state the limit of private property ownership have only been executed over the last 12 months. Bankruptcy laws only came into force in 2004. The strange structures Chinese companies use to raise money offshore were born out of necessity, not because Chinese executives have a penchant for using strange structures.

ENTREPRENEURIAL SHANGHAI

The number of expatriates in Shanghai is up for debate, depending on whether you count Hong Kongers and Taiwanese as expatriates and on whether you count the people on real working visas. The official numbers don’t count Hong Kongers or Taiwanese (collectively well over 250,000) but estimate over 50,000 foreigners are working in Shanghai.

As with multinational corporations, entrepreneurs face varying levels of bureaucracy in setting up their businesses depending on industry and the nature of their business. Redgate Media, publisher of the Chinese version of Rolling Stone magazine, ran afoul of Shanghai’s bureaucracy earlier this year because it did not get the appropriate licenses – this despite the fact that it has been publishing less high profile titles for some time. A company like game software outsourcing house Virtuous is welcomed to Shanghai with open arms and finds doors to Shanghai’s top universities open. Handy for recruiting.

Beijing might be the capital city and seat of China’s powerful State Council, but it is Shanghai where China’s burgeoning population of venture capitalists have set up shop.

Ron Cao, who recently joined Sandhill Road based venture firm Lightspeed as China partner, rattles off Shanghai’s advantages:

“(There is) a critical mass of VCs in Shanghai. If you were to do the math, there are more VC firms in Shanghai than Beijing; (it is) more convenient to travel within China. Trips to Shenzhen, Hong Kong, Suzhou, Hangzhou, and Beijing are all short flights/drives. Beijing is a bit removed. In Shanghai, winters are shorter, traffic is less congested, air quality is a bit better… and no sand storms! There are more internet/wireless deals in Beijing, but the greater Shanghai area has more telecoms and perhaps just as many media deals.”

Rob McCormack puts it simply: “Shanghai is a much better place to live. The pollution and sprawl are my biggest issues with Beijing.” While visitors to Beijing comment on air so thick with dust and pollution that it is ‘chewable’, Shanghai’s guests have been treated to improving air quality over the past five years as heavy industry moved away from the city.

With venture money comes entrepreneurs. Shanghai based startups , FocusMedia, Shanda and The9, have found their way to Nasdaq listings over the past two years. All three were venture backed, as was mobile value-added services player Linktone. The bias toward communications technology companies is a side-effect of Shanghai’s infrastructure investments. Shanghai, with its hometown vendor Shanghai Bell, leapt ahead of other mainland Chinese cities in terms of broadband subscribers because it deployed DSL broadband infrastructure early and consequently attracted bandwidth-hungry businesses, such as online gaming giants, Shanda and The9.

Entrepreneurial technology companies are having an even greater impact on Shanghai because they are not replacing incumbents. Venture-backed startups are not competing against state-owned enterprises and will not cost anyone their jobs. The State benefits from capital attracted to China and from the positive publicity, while new jobs are created.

Media companies have also been flocking to Shanghai, forgoing the obvious advantage of being close to regulators in Beijing. News Corp., Shanghai Media Group, FocusMedia, Sina.com and the Shanghai Media Group are among the companies that have bet that proximity to China’s most influential market trend wise will pay greater dividends than being able to see Beijing’s media regulators at the supermarket.

LAST WORD

Shanghai is an easy city to fall in love with. It took me all of five minutes on my first day (my bar is pretty low having lived in Singapore and Jakarta prior to Shanghai). Shanghai sees skyscrapers go up in six months, nightclubs and restaurants open on an almost nightly basis, and like New York, it never sleeps.

Paul Waide is the founding editor and a director of Shanghai-based publication, Pacific Epoch. Waide is currently freelancing out of Melbourne while he tries to recover from imbibing four years of rampant Chinese growth. This has been the last in Paul Waide’s four part series on China.


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