Shanghai has to build more than buildings to compete

The eastern city's impressive growth figures cannot hide the fact that it needs to diversify its economy

Shanghai has claimed it has come up with a surprise - by showing better GDP growth in 2013 than most people had forecast.

Although it is about only one city's performance, which makes up about 4 percent of China's total, how Shanghai - the country's commercial capital - manages its growth could point to the future for the rest of the nation.

Municipal officials announced on Jan 26 that the city's GDP had risen to 2.16 trillion yuan ($360 billion, 264 billion euros) in 2013, up 7.7 percent year-on-year, the same as the national growth rate. In 2012, Shanghai's GDP growth was 7.5 percent, below the national rate by 0.3 percentage points.

The improvement was creditable, municipal officials said, at a time of rising domestic costs and shrinking global demand for goods made in the city.

By comparison, China's overall economic data, released by the National Bureau of Statistics on Jan 20, showed 56.88 trillion yuan, or close to $9.5 trillion, in national GDP.

In a sector-by-sector breakdown, the NBS reported, primary industry (agriculture) saw a growth of 4 percent; secondary industry (manufacturing and construction), growth of 7.8 percent; and tertiary industry (services) growth of 8.3 percent.

It was the first time in China's recent history (indeed since the NBS began to release sector-by-sector growth figures) that the service industry grew faster than manufacturing.

In absolute numbers, the service sector's contribution to GDP was 26.22 trillion yuan. The service sector's contribution, 46 percent of the total, is way below that in Shanghai, where its share was 62.6 percent.

But Shanghai's record isn't impressive if compared with other major cities in the world, where services account for about 90 percent of their economies. In some regional financial centers, the financial sector alone contributes up to 50 percent. Shanghai is still a long way away.

Depending more on services, especially highly value-added services, is an inevitable course for Shanghai - even though its manufacturers, such as those in the automobile, pharmaceutical and petrochemical industries, did generate good growth last year.

Equipment and machinery manufacturing had been suffering from a lack of orders through the year, municipal officials admitted. And that would be enough to signal the same predicament coming for other industries.

This being the case, it is easy to understand why Han Zheng, the chief official of Shanghai, said he "didn't feel quite all right" after he went through the list of the top 100 private corporations based in the city - because the majority of them are real-estate developers.

Private companies are supposedly representative of the more flexible, if not more innovative, forces in the market.

Shanghai doesn't have Beijing's advantage in having the number of research institutions and technology companies that can flourish on contracts with the government's powerful national institutions.

At the same time, it just can't help conceding orders and revenues to traditional industrial manufacturers based in lower-cost locations. With a few exceptions, it won't take long for mass-production based manufacturing to fade away from the oldest industrial city in China.

Shanghai will therefore have to nurture a diverse and dynamic service industry to replace its no-longer-profitable manufacturing operations and to compete successfully within the country and in the world.

But its private capital, still highly, if not dangerously, concentrated in real estate, cannot help it realize its dream of becoming a new services center.

The city government has to prod, encourage and help private investors generate a more powerful wave of change.

The author is editor-at-large of China Daily. Contact the writer at edzhang@chinadaily.com.cn

(China Daily Africa Weekly 01/31/2014 page11)