Shanghai’s enterprising spirit is China’s best hope

Costfoto/NurPhoto via Reuters Connect

I first visited Shanghai in 2004 and wrote a column for The Observer newspaper that concluded: “I have seen the future: it is China’s communist-capitalism, and it works.”

Perhaps it was youthful (ahem) exuberance, but I was bowled over by the city’s entrepreneurial dynamism, all the more impactful given the communist red flags flying everywhere.

Shanghai has always been mainland China’s commercial, mercantile and financial hub, whatever the pretensions of Hong Kong to the south and austere Beijing up north.

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Visiting the city again 20 years later – as I did last week in the company of some bankers – I’d like to think my optimism was largely justified. Over the past two decades, communist-capitalism has propelled China to the world’s top slot for trade and manufacturing, and second only to the United States for GDP.

For much of that time, GDP growth was in double digits. Chinese spending on infrastructure and expansion of trade after the global financial crisis helped the world recover quickly from the Western-made 2009 recession.

Sometime around 2016, things started to wobble. China’s domination of global trade in manufactured goods provoked protectionism and tariffs, notably in the US under Donald Trump but also in Europe.

About then, other strains tightened in the Chinese economy. The workforce was shrinking and the proportion of elderly dependents increasing. Real estate became a national fixation as people looked to secure their old age with a roof over their heads.

In this delicate economic balance, the Covid pandemic landed like a body blow. No one felt its effects more than the naturally extrovert and gregarious people of Shanghai.

On my visit last week, financial professionals spoke of the trauma of being locked down at home or, even worse, in their offices for months on end. The pandemic restrictions and recession exacerbated all the other negative pressures on the Chinese economy.

Over the past four years, China has struggled with the legacy of the pandemic. It recently reported GDP growth of 5.3 percent – a globally respectable number but half of what it was in the heyday of the expansion. (The financial professionals in Shangai were sceptical that the official numbers were accurate).

Trading relations with the West have, if anything, worsened. President Joe Biden is now slapping punitive tariffs on Chinese steel imports while the EU is complaining that a huge volume of electric vehicles and renewable technology is “unfairly flooding Europe”.

Meanwhile, China’s real estate malaise has turned into a full-on crisis. Several of the country’s biggest property companies have either gone bust, are on the brink of bankruptcy or are reporting serious debt concerns.

The real estate crisis was the single most worrying topic that came up in conversations with Chinese and foreign bankers last week. None of them thought the full extent of the property collapse had been acknowledged and all of them thought it was worse than official accounts. Most could see no short or medium-term way through it.

Zuma Press/Alamy via Reuters Connect

There was also (private) scepticism over whether the authorities’ strategy to revive economic growth – the investment in “new productive forces” promoted enthusiastically by President Xi Jinping – is the way forward. Trying to take on the West in high technology and digital innovation was not a guaranteed success, my interlocutors thought.

Perhaps these doubts about a high-tech manufacturing future came more naturally in Shanghai, long a trade and financial centre that has also become a byword for conspicuous consumption in China.

The economists I met thought a better strategy for lift-off would be to unleash consumer spending, which languishes at a relatively low level in comparative global terms.

Judging by the daytime shoppers at the Shanghai World Financial Center in Pudong and the night-time revellers on the Bund – once the European quarter and now a venue for serious R&R – the city is doing its bit to propel China to economic growth.

It need hardly be pointed out that a healthy Chinese economy is good for all of us, especially the Arabian Gulf nations increasingly tilted towards the East for the oil trade, infrastructure investment and financial services.  

The experts are out on whether Xi’s new strategy will work for China. But after a few days in the city, I’m as convinced as I was in 2004 that Shanghai has a bright future and can pull the rest of the national economy along with it, given the chance.

The city has seen it all – opium wars, rampant exploitative capitalism, hardline Marxist-Leninist-Maoism, cultural revolution and communist capitalism. It will get through whatever the policymakers in Beijing throw at it.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE