Studying the head of the Dragon.
2003 International Study Mission to China
Shanghai and Suzhou, Jiangsu Province
March 28 – April 5, 2003
TRIP REPORT
by Steve Dunphy
A Customer and a Competitor
It was an unusual time. Half a world away, the United States was at war, the battles just beginning to be waged, the outcome uncertain. An ocean away, a new disease was spreading, its path and virulence equally uncertain. At home, the seemingly intractable problems seemed larger as Washington state dealt with a multi-billion-dollar hole in its budget.
In the ten years that the Greater Seattle Chamber of Commerce and the Trade Development Alliance of Greater Seattle have sponsored study missions to cities around the world, it was a trip fraught with more than usual uncertainty.
The destination was Shanghai and the neighboring city of Suzhou, in Jiangsu Province. The goal was to look at Shanghai, a city that has risen from slumber in the last decade to become one of the most vibrant cities in Asia. Once a city of three and four-story buildings little changed from the 1930s, Shanghai is today a city of soaring high-rise towers that have reshaped the city’s skyline.
In Suzhou, a “small” Chinese city with about six million people, the changes have been more subtle, with a new industrial park rising on its east side that has attracted more than 100 of the world’s top corporations. They are drawn to the Suzhou Industrial Park by ready-to-go facilities, tax incentives, inexpensive labor and the amenities – an international school for the children, golf and other recreation – that make it realistic for ex-pats to live and work there.
But like many of these study missions its significance really begins at the end. A tradition is to have the program for the breakfast meeting the last day on “lessons learned.” It’s a chance for participants to reflect on what they saw and what the region’s leaders in business, academics and government can gain from such exposure to the other places, other ideas, other ways of doing things. In the case of Shanghai, it was also a chance to see what a customer and competitor is achieving so rapidly.
At the final breakfast meeting, there was the usual frustration at not being able to get things done. Paige Miller, a Port of Seattle commissioner long associated with the Third Runway Project at Seattle-Tacoma International Airport, noted that Shanghai and the runway project both began to develop at about the same time, in the early 1990s.
While on the trip, Miller and others pushing for the runway checked back home at the Legislature for progress on “the dirt bill,” a piece of legislation needed to push the project toward final approval.
It didn’t help matters to look at Shanghai, where in the same period of time the Chinese government has built an entire new airport at Pudong, constructed miles of elevated expressways, completed three subway lines, plus bridges, tunnels, power stations, water treatment plants and other necessary infrastructure. In the same period, investors both Chinese and foreign have poured billions of dollars into the Shanghai economy, most evident in the estimated 1,500 high rise buildings constructed in the past decade.
“We need a democracy free zone so we can get something done,” was one rueful comment.
“We all understand that idea of world-class, world vision that we see here, but we don’t communicate it well to the public,” said Judith Runstad, chair of the Greater Seattle Chamber of Commerce. “We have to go back (to Seattle) and communicate that vision more.”
Others spoke of a sense of urgency they felt in China that was not present in our region. China knew it had to take the steps to make itself a modern society and took them. Seattle has assumed for too long that it is an international city and expects the fruits of that role to come without much effort.
More than a few of the participants looked at Shanghai and felt the frustration at getting things done in the Northwest. China rebuilt Shanghai in a decade, making it a showcase of China’s progress. In the same period, the Seattle area proposed a third runway that still isn’t built, struggles with mass transit, builds a growing list of undone infrastructure projects and suddenly realizes that if it doesn’t do something soon Boeing’s new airplane – and maybe all of its new models- will be built elsewhere.
The problem, as always, is that there was little consensus about what to do about the situation.
Tim Campbell, a World Bank official who studies urban settings, joined the trip to study how such missions worked. He said China’s strength comes from its shared values, its ability to build consensus. “Seattle’s strength is its diversity,” Campbell said. “You have to work on the teambuilding part, you have to manufacture the consensus. It comes naturally here.”
But Campbell said the authoritarian strength has its drawbacks. The Chinese are less flexible. They will make mistakes. They will decide to do things that don’t work.
While the frustration was high, so were the realities that this is a very different system than the United States. The economists call it externalities, or factors outside the usual structure of things.
“Shanghai ain’t China,” said Joe Borich, head of the Washington State China Relations Council, another group invaluable in putting together the mission and its program. In fact Shanghai is so far from both China and its economic/political realities that it might be considered a kind of economic fantasyland.
There is a process within the Chinese government, both at the central level and at the city level, but it is a process that would not work anywhere else except in an authoritarian, centrally planned and controlled economy. Here the usual rules don’t apply — from zoning permits to return on capital.
More than once, Chinese officials said in a kind of offhand way how quickly they could get things done. A permit on an international project – probably the same day or maybe two days if it is particularly large.
Developers of many of the new areas in central Shanghai have little problem in getting permits. Problems that would be almost impossible to comprehend in a Seattle context – moving 5,000 people from their homes to new abodes elsewhere in the city, for example – are accomplished quickly. Sites are ready to be transformed in months, not years.
But such is the power and magnetism of Shanghai. It is the reason the Chamber and the TDA chose Shanghai to visit, plus the regional city of Suzhou.
Suzhou: Building off of Shanghai
After a long flight that took the group from Seattle to San Francisco to Shanghai on United Airlines, the group awoke to a sunny Sunday morning in Suzhou. There was even an accomplishment to mark on the very first day.
Yang Weize, the mayor of Suzhou, in a formal ceremony in a nearby park, presented a Taihu rock to the Seattle Chinese Garden. The stone, a key piece of any authentic Chinese garden, will be shipped to Seattle and become a part of the garden here. It was a day to get acclimated to the new surroundings.
Suzhou is famous for its gardens and nearby lakes – the Taihu rock that will become a major part of the Seattle garden comes from Lake Tai near Suzhou, which has played a role in many classical Chinese gardens. A week later, in Chongqing, the Seattle garden passed another milestone. The Master Plan for the garden was officially presented to the City of Seattle.
But for now the focus was on Suzhou and Shanghai. And what better way to begin than to visit one of the top gardens in the city, The Garden of the Humble Administrator, a wise choice given the number of “humble administrators” in the Seattle group. There was also a visit to a town where the canal system used in the region for centuries has been preserved.
At lunch, Lois Dougan Tretiak, the China expert at the Economist Corporate Network, provided an excellent outline of the current Chinese economy, its potential and its problems.
Then it was to work.
One of the reasons for going to Suzhou was to see how a city working in the shadow of an economic giant succeeded. Even in a Chinese context, it is an interesting question. For example, Nanjing, the region’s second largest city, has been a relative laggard in economic development compared with Suzhou.
Suzhou has attempted to turn itself into “Shanghai’s back garden” as one expert said and as a result managed to attract more foreign investment than even its giant neighbor in 2002. Suzhou benefits by being physically much closer to Shanghai than Nanjing — but does reflect a perception that it does not pay to cross Shanghai.
As we were to learn a few days later, Shanghai is powerful on a number of levels for the other cities in the Yangtze Delta. It is the service center connecting the region to global markets; the largest and wealthiest concentration of consumers in the domestic economy; and the country’s most powerful political player, with unrivalled connections in Beijing.
Mayor Yang has played on that development. In brief remarks to the
group Sunday morning, he talked about the region and how Suzhou and Shanghai have transformed themselves. Of course, he said Suzhou had farther to go than Shanghai. Shanghai is hard to catch – it has changed in the 10 years or so since it was allowed into the market economy, ridding itself of large numbers of state-owned factories. In effect, it has contracted out manufacturing to neighboring cities, such as Suzhou.
The state sector remains dominant in Shanghai, deliberately so, to allow the government to control the city’s development. That is beginning to change quite quickly, however, with a report that 60 percent of Shanghai’s GDP came from the private sector last year, the first time that has happened.
The jobs lost in this transformation, especially in textiles, have been replaced by jobs in construction and in service industries ranging from taxi driving to hospitality to retail to the more lucrative professions of law and accounting.
Mayor Yang — also a deputy to the National People’s Congress, so with good political connections of his own — said that the market, rather than the government, should play a leading role in promoting the region’s economic integration.
Officials in local cities should map out their development strategy according to the market situation to reduce overlaps in the industrial layout and improve the efficiency of the whole region, said Yang.
Suzhou Industrial Park
Suzhou, in Jiangsu Province, has become a city famous for its technology and industrial park, rivaling its historic role as a city famous for silk, gardens and nearby lakes.
The change is perhaps best represented by the Suzhou Industrial Park (SIP), a joint development project between China and Singapore. It began in 1994 as a decade-long project to build a high-tech industrial complex in China that could rival the Silicon Valley in California.
The partnership brought together Singapore’s globally competitive expertise in development and China’s low labor costs and potential as the world’s biggest market. It has had its rocky periods – especially when Suzhou built its own industrial park and went into competition with the Singapore joint venture.
But now it is flourishing with more than 1,000 companies located there. The study mission saw a number of important steps being taken at the park, especially ones planners hope will continue to attract companies, which will staff operations in part with ex-pats. Schooling is often a crucial question. But the SIP had that well in hand.
At the SIP International School, the group visited a school with more than 400 children studying mostly under an internationally based curriculum. The unofficial role that Taiwan plays in the Chinese economy was evident in the school – more than a quarter of the students were the children of families of Taiwanese executives working in the industrial park.
The SIP is one of five economic development zones or park, in the Suzhou area. The city has banked much of its development on the zones, which are designed to attract high-tech companies from the U.S., Europe, Japan and Taiwan. In a briefing by Wang Guoxing, vice mayor of Suzhou, the importance of high tech was stressed, now representing 45 percent of the city’s total industrial output – a far cry from the days when textiles and silk dominated the economy.
Monday morning began with a briefing from several businesses with operations in Suzhou. Michael Barbalas of Andrew Telecommunications, a company that makes cell-phone equipment, said it chose Suzhou because of lower costs than Shanghai.
“We have good relations with the city,” he said. “It is a small city and it pays attention to smaller investors.”
One disadvantage, he said, is attracting top management to a smaller market like Suzhou. “We try to tell them that all the nice cities in the U.S. are small cities,” he said, but they still want to be part of the big city in nearby Shanghai.
Several members of the mission had been to the Suzhou Industrial Park previously. Joe Borich, of the Washington State China Relations Council, said that when he first visited the park in 1994, it had only a temporary administration building, the beginning of a road network and a handful of foreign companies that had set up shop.
These days there are more than 1,000 projects in the park, an economic force in itself. It has some advantages other areas do not, including its own customs house, fast-lane import and export systems and various tax incentives.
Suzhou Sees Education as Key
Vice Mayor Wang said IT industries have become the focus of Suzhou’s development. And Suzhou looks beyond itself to the outside world for its future.
Wang said Suzhou continues to try to build from its existing base. “To realize this goal, it won’t do if there were no cooperation between Suzhou and other countries in the world, between Suzhou and entrepreneurs and between Suzhou and investors,” he said.
One of the big issues in China these days is the concentration of wealth along the coastal cities.
At a briefing later that morning, the group got evidence of that concentration. Jiangsu Province officials said the province has 1 percent of land, 6 percent of the population but accounts for more than 10 percent of gross domestic product. Suzhou itself accounts for 2 percent of the national total.
If there was anything that was repeated during the mission it was the importance of education and how much China is investing in it. At Soochow University, President Qian Peide outlined how the federal government has nominated 100 schools for special attention. It means they have the financial resources necessary to do the job.
Even the businesses of the region see the link. The SIP is currently constructing a “graduate town” in which it plans to house campuses for 10 or more major universities to carry out graduate programs plus research and development. Suzhou has placed a high priority on high school and post-high school education. The city’s leaders stated that the average first-time job seeker has at least a high school education, and that 28 percent of those in the 18-22 age group have also received some higher education.
On Tuesday, U.S. Consul General Doug Spelman was generous with his time, providing a briefing and update on China from his perspective. He said China-U.S. relations are in “pretty good shape” with “our common interests outweighing our disagreements.”
Shanghai is a key to Chinese development, Spelman said, although there is some tension between Shanghai and the central government. Shanghai was “severely restrained” for a number of years, before being allowed to develop its vision for the future.
Spelman said Shanghai has its soft spots. Traffic is increasingly a problem – the statement greeted with many nodding heads. The environment has been left behind in headlong development, but now the city is trying to do something about it, devoting a third of any new space developed to parks. The housing stock is old and needs updating.
Shanghai: Defying Description
Then it was on to Shanghai itself, a city that almost defies description these days. For many who had never been to Shanghai, it was a matter of “shock and awe.” For others who have been there over the years, it was a shake of the head and wonderment about how this could be achieved.
I was first in Shanghai in 1985, staying at the Park Hotel, then the only building in the city of more than 20 stories. There are now more than 2,000 buildings that tall, most of them built since the early 1990s.
The delegation entered Shanghai with a look back, an excellent review of things from Norman Givant, a lawyer and a long-time resident of the city. The luncheon meeting was held in the Ruijin Guest House, an oasis of green in the high-rise jungle of modern Shanghai. It is in the old French Concession, dating from Shanghai’s past.
Givant noted that past, saying in the 1930s and 40s, the city never slept, although by the late 1980s “the city had been asleep for 40 years.” Today that has changed, dramatically. The city now keeps about 60 percent of its taxes and revenues and shares the rest with the central government, about reverse the payout of the past.
That has provided Shanghai with the money to move ahead rapidly, as it did in the 1990s, Givant said. Combined with foreign direct investment, Shanghai has transformed itself as perhaps no other city in history. Givant said it wisely spent the money on infrastructure, on bridges and tunnels that now cross the Huangpu River, on expressways and subways and light rail lines linking the suburbs with the center.
As we learned later, Shanghai is not done yet. A new, deep-water port is under construction and the Pudong international airport will accommodate up to 80 million passengers per year when the final phase is finished by 2010. In addition, a 35 km bridge across Hangzhou Bay and a bridge tunnel project spanning the Yangtse River estuary are under construction. When complete in 2007, the two projects will link NE Zhejiang Province and the north bank of the Yangtse to the economy of Shanghai.
During the afternoon, Frank Yun O Peng, director of the US-China Business Center at Tong Ji University, took Shanghai’s output and created daily averages. The exercise produces some staggering examples of growth. For example, he estimated that gross domestic product grew on average by nearly $500 million per day.
Elsewhere on an average day in Shanghai:
- Fixed asset investment grew by nearly $70 million per day;
- Revenue increased $75 million;
- $13.8 million in new foreign direct investment was added;
- Foreign trade averaged nearly $200 million per day, of which $111 million consisted of imports;
- Shanghai Port handled about 23,600 TEUs;
- 29,000 mobile phones were produced and 7,800 new subscribers to mobile phone services were added;
- Shanghai residents added $35 million to their bank savings accounts;
- The city received 7,467 international and 240,000 domestic visitors.
Not bad for a city that Zhang Zhongli, president emeritus and senior advisor at the Shanghai Academy of Social Sciences (and who attended the UW forty years ago), described as a mere fishing village. Zhang was able to trace Shanghai’s history back about 1,000 years. However, it’s development into a major city did not begin until the late 19th century, making it one of China’s younger cities.
At several briefings, the delegation learned the pace of development will not slow, with a number of major projects in the works targeting 2010 as a deadline, when Shanghai will host a world exhibition, a World Expo similar to Seattle’s 1962 event.
Rick Steves, a well known travel writer and travel television personality, wondered about putting so much attention on the fair, noting that such events are regarded as old fashioned now and out of favor. However, several public officials noted the value of having a target to shoot for in order to spur development.
Shanghai’s Tremendous Infrastructure
Among the new developments are five more subway lines to go with the four light rail/subway lines open or under construction – staggering to the Puget Sound officials who struggle to get a single light-rail project under way in the Seattle area.
The new Pudong International Airport will have a second terminal and three more runways. Two more bridges and at least one more tunnel will cross the Huangpu River. A new deep-water port off the coast will require a 22-mile long bridge/causeway, plus a “new city” and various port facilities, estimated to cost about $30 billion.
New high-rises, including what will be the world’s tallest building – the World Finance Center in Pudong – will continue to go up, although probably at a somewhat slower pace. There are still questions of overbuilding in many Chinese cities.
Shanghai officials also seemed to come up with a slogan to help focus development. For example, its plan to enhance its stature as a world trade and logistics center is centered around what officials called the “three ports” – the new deep water port, two international airports and an “information port.”
The Tuesday night dinner was a highlight. It was at the Shanghai Science and Technology Museum, the same place where the APEC (Asia Pacific Economic Cooperation) meeting was held last year. The table, set as it was for the heads of state, has been preserved in a large room in the museum.
Over the next few days, the delegation’s knowledge of China and Shanghai continued to be filled in by briefings and meetings, ranging from U.S. businessmen with the American Chamber of Commerce in Shanghai to a morning-long briefing on the city from city officials representing, housing, transportation and the port. Many of the new infrastructure projects in Shanghai were described during those sessions.
The Subject of SARS
By this time, the question of the impact of the SARS outbreak was a frequent topic of discussion. At several events, the delegation was assured that Shanghai officials were watching the situation carefully and that no cases of SARS had been reported in the Shanghai area.
As we and the rest of the world learned later, China had not done a particularly good job of addressing the outbreak, receiving much criticism for lack of quick action to control the outbreak and for trying to hide the extent of the outbreak in China.
However, it appears that Shanghai officials were being relatively straight with the delegation. Few SARS cases have been reported in Shanghai with only eight recorded as of late May.
Shanghai Planning
On Thursday afternoon, the delegation split into several groups dealing with specific interests – high technology, housing and urban planning, transportation and the medical field. At the high-tech session, Kathy Wilcox of the WSA (software alliance) led a discussion of Shanghai’s growing high-tech sector. Shanghai officials and software company officials stressed the development of a software industry in the city as a key to its future.
Wilcox said groups such as the alliance are increasingly international in their outlooks. Future interactions are likely.
A group talking about housing and urban development learned that many more Chinese own their homes than earlier believed, as many as 85 percent in Shanghai. There was some question of that figure since it is higher than that of the U.S. Home ownership increased tremendously in the 1990s when state-owned enterprises in Shanghai sold their housing stock to occupants at bargain-basement rates.
Shanghai officials laid out large-scale plans for the future of the city and its people. New clusters outside the central city would be set up for biotech, for example, as the city strives to move away from its industrial base and toward more knowledge based jobs. The plans showed satellite cities and towns, an emphasis on parks and quality of living. The population, already large and expected to grow considerably in the years ahead, would be dispersed to these areas, reducing the concentration in the central city.
Campbell, the World Bank urban planner who joined the delegation to learn how such “city visits” worked, observed that this might be a mistake on the part of the Chinese. What often makes a city come alive is its urban core and the chance for its creative people to mix and mingle. Dispersing that energy to satellite towns may in fact frustrate that goal.
“We have fast food, they have fast cities,” Campbell said. Each produces its own kind of heartburn.
Shanghai already is losing its competitive edge in manufacturing. Companies moved to Suzhou because labor costs were lower. The difference is even more profound when Shanghai is compared with the interior cities, where the wealth of China has yet to spread.
Shanghai has made great strides in shifting its economy away from heavy dependence on state owned enterprises – about one job in three is now in the private domestic sector. Shanghai recently reported that more than half its current output comes from the private sector, a first for any city in China. Officials said about 100 new, private enterprises are registered in Shanghai daily.
City officials also admit to problems with such sweeping change. There is a “floating population” of nearly four million, mostly peasants who have migrated to the city seeking the greater economic opportunities available. Massive redevelopment in the city has also meant displacement for many as their homes were leveled for new high rises. They are moved to other new housing in and around the city, but as Rick Steves, the travel writer, observed, Shanghai seems to have lost its soul.
Urban planners said they expected Shanghai’s population to grow by another four million to a total of 20 million over the next few years. If history is any guide, this is a low forecast and the city could find itself overwhelmed with new residents before it knows what to do with them. While progress is good, new jobs are not being created at the same speed that old industry jobs are disappearing. Service sector jobs are increasing – the new emerging middle class is increasingly hiring domestic help, for example.
Education is a key. At Fudan University, the delegation learned how much China is investing in higher education in order to create the knowledge workers it so desires. The number of students enrolled in college has jumped from 6.4 million in 1998 to 16 million in 2002. In Shanghai alone the number jumped from 234,000 in 1995 to 656,000 in 2002.
An amazing statement from President Wang Shenghong of Fudan was that half of the people in Shanghai between the ages of 18 and 21 are either in college or in some sort of vocational training. A new branch of Fudan University is under construction.
Another of Shanghai’s ambitions is to become a financial center, rivaling Hong Kong for that role in China. At the Shanghai Stock Exchange in Pudong, a gleaming new building symbolizes the goal. Surrounding high-rise buildings also provide the necessary real estate for the growth. James Liu of the Shanghai Stock Exchange said the goal is to create a world-class exchange over the next 10 years or so. They have a long way to go with work only now beginning on rules and regulations. Other problems include dual listings on the stock exchange – separate “markets” for domestic or foreign companies. Obligations under China’s accession to the World Trade Organization require more open and transparent financial rules, something China has been slow to produce. Its currency is not freely traded and the judiciary is far from being fair and impartial – payoffs are far too common among judges.
Understanding Shanghai and Puget Sound
What to make of it all?
Joe Borich, in his own “trip report” to members of the China Relations Council said the briefings were generally upbeat, but the optimism was mixed with a candid examination of the challenges Shanghai faces.
“Beyond the seemingly boundless energy and wealth that was everywhere evident lay concern over underfunded health care and social security programs, restructuring of the state owned enterprise and banking systems, the clean-up and protection of a still very dirty environment, and how to cope with a municipal population expected to grow by another four million or more people in this decade,” Borich wrote.
The last formal meeting of the trip was lunch on the rooftop of the Peace Hotel. The hotel dates from Shanghai’s colonized past when it was the “Paris of the East.” The rooftop provides one of the most spectacular views of the Pudong area, the symbol of Shanghai’s growth.
Less than a decade ago, the Pudong area was fields and small factories. Today, hundreds of high-rise buildings have risen in the district, many in the last five years. Across the Huangpu River in the city’s old section, tourists and Shanghainese can be seen framing their photos with the new district and its distinctive Oriental Pearl TV tower.
The combination of the old and new – the Peace Hotel and the Oriental Pearl – may be the best metaphor for Shanghai and what the delegation learned there.
Applications back home? Hard to make given what the economists call the “externalities,” the differences. Government structure, foreign direct investment, the lack of any “process,” a homogeneous population, all contribute to making things easier to do in Shanghai.
Perhaps the best comment came after listening to Shanghai officials describe how they are going to work to make changes in advance of the 2010 World Expo. There was a sense of urgency, of the need to get things done now.
“We have no sense of urgency in Seattle,” said one delegate. “We have no sense of crisis.”
A city like Shanghai can provide that sense of crisis. It is moving very rapidly ahead, leaving places like Seattle in its wake. We fall farther and farther behind as an “international” city.
At a recent meeting in Tacoma, bringing together top Pierce County officials and business executives, the conversation was similar to others – marveling at what the Chinese have done in places like Shanghai and acknowledging the role China plays as a key customer of the Northwest. China is Washington State’s third-largest export customer and is now the Port of Tacoma’s largest trading partner by volume. The temptation is to leave it at that. But Ray Tennison, president of Simpson Investment, perhaps caught the real impact of Shanghai. “We need to seriously recognize they are after our jobs,” Tennison said. “They are after the jobs of everyone in this room.” Education is one of the keys, he said, looking at the number of young people in school and the kinds of engineering and professional degrees they are earning.
“We still have the edge in being more innovative and creative,” Tennison said, “but we’ll keep that edge only if we are willing to invest in it.” China, epitomized by Shanghai, is a good customer of the Northwest, no one denied that. But China is also a major competitor with implications far beyond another new high rise or quickly executed transportation plan.
It’s a new game out there.