New glitz fails the happiness test

By Ellen Sheng
Financial News, May 16, 2011

For evidence that Shanghai is reclaiming its storied past, look no further than its waterfront, the Bund. It has just seen the reopening of the Long Bar, restored to its 1920s glory with a replica of the original 39-foot bar, dark wood panelling and ceiling fans.

The bar has reoccupied its old spot in the former Shanghai Club, a famous British gentlemen’s club in pre-Communist China.

The city’s renowned waterfront transformations have provided the pulse to Shanghai’s remarkable economic development for more than 30 years. The Shanghai Club building is a case in point. It was trashed during the Cultural Revolution, became the site of Shanghai’s first KFC in 1989 and has now been reborn as a luxury hotel, the Waldorf Astoria Shanghai.

It is just one of many such restorations around the city. Restaurants are evoking days of yore with old jazz tunes and Shanghai’s unique mix of Art Deco and old wooden Chinese furnishings. The just-launched Peninsula hotel (the first new building on the Bund in over 60 years) and the revamped Peace Hotel are also bringing Shanghai’s glamorous past back to life.

But Shanghai’s embrace of its past is only part of its renaissance. More significantly, the city is reclaiming its role as China’s main commercial hub.

The central government has put forward plans to transform Shanghai into an international financial centre by 2020. The city is expected to be operating a multi-functional and highly internationalised financial market in less than a decade.

The Shanghai government is continuing to court foreign investment as part of China’s plan to foster a home-grown private equity industry. Even though fundraising for private equity and hedge funds around the world continue to be sluggish, Chinese private equity and hedge funds, many based in Shanghai, are pulling in more than ever before.

Shanghai officials have even started allowing foreign private equity firms to launch yuan funds on the mainland, converting overseas capital into yuan.

So far, 50 private equity firms have applied for the scheme, which allows overseas investors to bypass approval by the foreign exchange regulator.

Shanghai’s resurgence is creating uneasiness in Hong Kong – China’s other commercial centre.

China’s growing wealth and openness to the world jeopardises Hong Kong’s role as the world’s gateway to China. The Blue Book of Urban Competitiveness, published by the Chinese Academy of Social Sciences last month, said Hong Kong’s economic advantage over Shanghai is narrowing.

While the concern is valid, Shanghai still has a fair way to travel. Unlike the Hong Kong dollar, the renminbi is not yet a freely traded currency. The Shanghai Stock Exchange, like any other stock exchange in China, is not open to foreigners – except certain “qualified foreign institutional investors”.

In many respects, Shanghai’s fast-growing financial sector remains closed to the rest of the world’s investors… for now. Hong Kong supporters also point out that their city’s legal system is more developed.

Shanghai has a problem because the growing gap between rich and poor, leading to potential unrest, weighs heavily on the Chinese government.

Shanghai’s residents are among the biggest beneficiaries of China’s growing economy, but the city has a large underclass of working poor from all over China who wait at tables, clean apartments while eyeing the trappings of wealth.

Central planning and redevelopment has moved many old-time residents from central locations to distant suburbs. Shanghai’s sky-high property prices have priced a swathe of the population out of the market.

In a recent survey by the Academy of Social Sciences, Shanghai ranked as the second most competitive city in China, behind Hong Kong, but came 205th out of 294 cities in an index measuring people’s happiness. Money doesn’t quite buy everything.

This article originally appeared in Financial News. Used here with permission.