August 2007

Shanghai, with a history of only 150 years, is clearly a newcomer in a country that boasts several cities that can be traced back centuries or even millennia. In its short lifespan, Shanghai has become one of the most pre-eminent and influential metropolises in the world. In 2005 the city was home to 40,000 foreign workers with half the world's Fortune 500 companies and 60 multinational regional head offices. Shanghai has played host to the Formula One races, to foreign cultural and economic events and will be hosting this years FIFA Women's World Cup, the Special Olympics as well as the 2010 World Expo.

Shanghai Today

Today Shanghai is home to 70,000 foreign workers with 430 Fortune 500 companies and more than 400 multinational regional head offices, investment companies and R&D centres.

With so much international interest, the city has become one of China's top entry points for foreign investment into China. Due to its ideal location at the mouth of the Yangtze River, Shanghai is considered the economic and financial centre of China. It has developed into a multinational city of an estimated 17 million people and is widely regarded as one of China's most important cultural, commercial, financial and industrial centres.

Shanghai's Economy

Shanghai's economy has recorded the fastest growth in three years during the first half of 2007 as exports were strong and the stock market fuelled consumer spending. Analysts have predicted that the momentum will continue in the next six months if stocks keep up in this rapid pace. The city's gross domestic product (GDP) jumped 13 percent year on year to RMB 556.19 billion (USD $73.55 million) in the six months through June. The city's growth rate in the first half year has reached 11.5 percent.

Shanghai's service industry has led the growth with a gain of 14.1 percent to RMB 285.84 billion in the first six months, charting faster growth than the manufacturing sector for the first time since 2001. Manufacturing climbed 12.1 percent to RMB 267.33 billion through June. The reason for this drive from the service industry came from the financial sector which contributed 18 percent to the total GDP growth during the period. Due to the booming stock market, the growth was 16.3 percentage points higher than in the same period last year.

Shanghai's Industrial Sectors

Shanghai's economy is primarily based on the manufacturing sector, which includes automotives, the manufacturing of power station equipment and parts, electronic and telecommunications equipment, petrochemical and fine chemical processing, iron and steel and home electric appliances. But in recent years Shanghai's economy is becoming more and more service-oriented, resulting in the tertiary sector accounting for nearly 50 percent of Shanghai's GDP in 2006.

As China has been opening up sectors due to its commitments to the WTO, Shanghai has taken a lead position in promoting these sectors to foreign investors. As a result there are now 400,000 private enterprises in Shanghai - a number that has been growing at a rate of nearly 40 percent annually in recent years.

In 2005, the city obtained nearly 3,000 domestic and foreign financial institutions (such as AIG and HSBC), with a combined total of USD 322 billion in assets. The city not only developed a zone to attract financial institutions, but in August 2005 the central bank relocated many of its open market operations from Beijing to this zone in the Lujiazui district, in the Pudong New Area.

Shanghai is also home to two of the Mainland's stock markets, the Shanghai Stock Exchange and the Shanghai Gold Exchange. The Gold Exchange is China's sole exchange for precious metals, including gold and platinum.

Shanghai Futures Exchange (SHFE) is providing the place, facilities and services for the centralized trading of futures contracts. At present, there are four contracts including copper, aluminum, natural rubber and fuel oil. SHFE has about 219 members, of which, 183 are brokerage firms, and the rest are proprietary members. The Shanghai Future Exchange is the largest amongst the three exchanges on the Mainland in terms of trading value.

Shanghai's Job Market

As a result the gap between Hong Kong and other regional centres in quality of labour is shrinking fast, although Shanghai still has significant labour cost advantage. In 2006 Shanghai was ranked 20th on the list of the most expensive cities in the world in terms of living costs. As a comparison, Hong Kong is ranked fourth on the list. As a consequence, the Shanghainese middle class is growing at a fast rate as the city's residents become bigger spenders. The average Shanghainese enjoyed USD 7,000 in annual disposable income in 2006, among the nation's highest levels. A negative consequence is that many foreign companies are relocating to inland regions or second tier cities for cheaper labour options.

Surprisingly, the number of job vacancies and job seekers in Shanghai's second quarter in 2007 have risen about 20 percent compared to the first quarter this year. A report, conducted by the Shanghai Labor and Social Security Bureau, said 20,000 Shanghai enterprises registered, offering a total of 390,000 vacancies, a 20.7-percent rise from the first quarter. A record of 419,000 people applied for jobs at public job placement centers across the city, rising by 23.2 percent from the first quarter, with most job seekers being 25 to 34 years old. The city's key sectors, such as medicine manufacturing, chemical and logistic industries, attracted the most job seekers. According to the report, a total of 1,009 people applied for 273 medicine manufacturing jobs, the lowest in the top 10 industries. Job seekers are following growing industries. But still some occupations are suffering a shortage of qualified staff. Only 35,402 applications were received for 48,467 sales positions posted during the second quarter.

Shanghai's Property Market

The latest research report conducted by Colliers International indicated that the Shanghai investment market has remained stable in the first six months of 2007, continuing the trend of 2006. An estimated ten investment deals were closed in the first quarter, with residential properties and office properties being the top two property types that were hotly sought after by foreign investors.

Following a weak luxury residential market in 2006 which saw the segment significantly hit by government regulations aimed at restricting foreign ownership of Chinese properties, the luxury residential market rebounded in as many investors cashed out of the increasingly overheated Shanghai stock market and turned to luxury properties as long-term investments.

In the beginning of this year Grade A office space reached approximately 103,000 sqm as tenants from the finance, professional services, pharmaceutical, technology and consumer products industries seeking space for expansion, upgrading and relocation drove up demand in the city. The demand-supply imbalance led to the rise in average office rental values to USD 32.10/sqm/month while vacancy dropped to 3.4 percent, the lowest level in five years. As a result of the positive outlook for the Shanghai office market with the potential for higher office rental returns, foreign investors continue to seize office properties.

Shanghai's retail market has continued to grow, with retail sales growing 14 percent year on year in May. In line with the booming market, international retailers of all types - from fashion to food and beverage - continue to come to Shanghai, driving up average ground floor rentals to USD 120.60/sqm/month, up 8.8 percent YoY. The upbeat outlook of the retail market, together with the high spending power of Chinese consumers, has led to positive foreign investment interest.

Similarly, the industrial market ended on a positive note this quarter, with average rentals of industrial parks and business parks up 5.1 percent to USD 3.28/sqm/month and 4 percent to USD 12.47/sqm/month respectively, as logistics and manufacturing companies continue to expand in the industrial parks and more multinational corporations relocate their back-end operations to business parks.

Looking forward, the government's recently-announced real estate regulations on more stringent requirements related to mounting investment projects and the enforcement of a more complicated process may potentially cause delays in the conclusion of investment deals.

Shanghai - the exhibition city

Shanghai is home to seven exhibition centers and has become one of the busiest centers hosting international trade exhibitions ranging from Apparel & Clothing, Automotive, Business Services, Computer & IT, Furniture, Home Textiles, Industrial Goods and Travel & Tourism.

In 2006, Shanghai organized on average 5.7 international exhibitions per week, totaling 295.

Shanghai's Infrastructure

Shanghai is an important logistics hub with easy access to the outside world by all forms of transport, including but not limited to container shipments by sea and inland waterways, highway and railroad networks and international air travel. Over the last six years, important developments have been made in the construction of urban infrastructure in regards to major functional facilities, hubs and networks.

Port Development

The construction of the 'Shanghai International Shipping Centre' made new headway, with the first and second phase of Yangshan Deepwater Port being completed and put in use. Currently the Port of Shanghai ranks second in the world, followed by Hong Kong and only passed by Singapore, in terms of container through-put.

The port of Shanghai has experienced an explosive growth rate in the last years, averaging 29 percent per year. This growth is driven by accelerated export demand. The Yangshan Port Development project is divided into four phases, which will not be fulfilled completely until 2012, and includes a 52-berth container terminal, located on a cluster of partially inhabited islands in Hangzhou Bay, south of Shanghai. In addition, the project includes a 32.5 km bridge that connects the islands to the closest on-shore point and a shore-based terminal to accommodate subsidiary facilities that cannot fit on the small islands.

The 1st-phase of the project was officially completed on December 12th, 2005, includes five container berths with a total handling capacity of 2.2 million TEUs (twenty-foot equivalent units) and the construction of the 32.5 km long Luchao-Yangshan Bridge. The Yangshan 1st-phase has already reported handling 2.83 million TEUs, surpassing its designed capacity.

The 2nd-phase was completed in December 2006, contains four more berths on a 1.4 kilometer waterfront. It has been designed to handle 2.1 million TEUs per year, but experts believe that it can handle up to 3 million TEUs of throughput. The total capacity of the 1st- and 2nd-phase will be approximately five million TEUs.

An important characteristic feature of the Yangshan deepwater Port is that it is China's first bonded port. It is expected to offer unprecedented convenience to shipping and logistics businesses.

Airport Development

Pudong's international airport has eased pressure on Shanghai's original airport, located in Hongqiao, and has taken over all of its international flights, as well as regional flights to Macau and Hong Kong. It is planned that the Pudong International Airport will have a handling capacity of 80 million passengers and 5 million tonnes of freight a year, once the long-term plan of three terminals, two satellite halls and five runways, are realised.

In March 2005 the second 3.8 km runway increased the airport's capacity by 60 percent and can have a handling capacity of 300,000 flights a year. In 2008, Pudong is planning to add a second terminal and a third runway.

The cargo transport volume at Shanghai's Pudong International Airport reached fifth in the world in the first quarter of 2007. Pudong's cargo throughput reached 1.12 million metric tons in the first half of the year, up 16.3 percent over last year. The airport has over 700 cargo flights per week, accounting for 15 percent of its total flight traffic.

Metro System

Shanghai's metro system currently consists of five metro lines with 145 km of track, which carries approximately 657 million passengers per year. The city has approved a major expansion project to enlarge the length of its elevated train and subway networks. It has four new lines under construction as well as several extensions to the existing lines. Further lines should be completed by 2010 in time for the World Expo, by which time the network will stretch to 11 lines with 400 km of track. The expansion plans include connecting both of the two main airports with the city centre.

Rail Networks

China's first high-speed railway is currently being built westwards along the Yangtze River, eventually linking Shanghai with the Sichuan province. It is estimated the speed of the trains will reach 200 km per hour and the section of the line between Shanghai and Nanjing, will be shortened to just 90 minutes when it is completed in 2009. The journey to Chengdu will be reduced to approximately 10 hours from the current 35 hours.

Highway Expansion

Shanghai will expand its expressway system by one-third, build a series of seven park-and-ride stations to encourage Metro use and make it easier to pay highway tolls in the next three years. The improvements are part of Shanghai's plan to help boost economic development in the Yangtze Delta area by better coordination of the regional transport system. The city plans to increase its expressway network from 200 kms to 800kms, featuring five connections to neighbouring Jiangsu Province and four to Zhejiang Province.

All of these new developments are being designed to relieve traffic congestion during the 2010 World Expo when 70 million people are expected to visit the city.

Upcoming Events

Special Olympic Games

From the 2nd to 11th of October 2007, more than 10,000 athletes and coaches from 170 countries will converge on Shanghai to compete in the 21 competition and four demonstration sports at the 12th Special Olympics Summer Games. The opening ceremony will be held at the 80,000 seat Shanghai Stadium. The event will mark the first time the World Summer Games will be held in Asia, and only the second time they will be held outside the United States. In addition to the athletes and coaches, Special Olympics expects the 2007 World Summer Games to draw 40,000 volunteers, 3,500 event officials and thousands of families, volunteers, spectators and journalists from every continent. The Shanghai Games have received strong governmental support. It is believed that the Games will offer and have already offered an opportunity for the government, businesses and non-governmental institutions to build partnerships that benefit both commercial interests and people with intellectual disabilities in China and around the world. The event will also mark an important event in China's self-definition. In the modern era, China has never defined itself to the outside world according to human values of humanity, dignity, acceptance and harmony. In China there are 14 million people who have intellectual disabilities. Shanghai will be hosting the world's largest Special Olympics movement, which is a special source of pride for Special Olympics worldwide and for China.

Shanghai Expo 2010

It is believed that China's economy will maintain its robust development after the 2008 Beijing Olympic Games and the 2010 Shanghai World Expo. Hosting the Shanghai Expo, in particular, will be an event far greater as Shanghai will be the first developing city to host such an event and it will most certainly enhance China's cultural heritage. The Expo will show the economic and social strength of participating countries, especially their most advanced cultural and scientific achievements. A total of 158 countries, regions and international organizations have so far confirmed their participation in the Expo, which will be held from May 1st to October 31st, 2010.

Organizers have announced that tickets will go on sale on September 9th 2008, with the benchmark price being set at RMB 160. Organizers are hoping to attract 200 countries and international organizations, the biggest number in the World Expo history.

Future Outlook for the City

Although Shanghai's recent growth is impressive by any measure, the city is not content to be just a regional player in Asia. Shanghai aims to become a world-class economic and cultural centre on the level of New York, London and Hong Kong. Change in the city will always be constant. Remnants of the old Shanghai that were left almost untouched from the Communist victory in 1949 through to the 1990s are being torn down to make way for even more office, residential and retail complexes.

The city will continue to promote itself to foreign and local investors by providing preferential policies and being the leader in implementing new regulations and sectors associated with the WTO. It will continue to expand outwards to cover more territory and land in order to enlarge the metropolis it is today.

If you require assistance with the above subject, please contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it with your detailed questions.

All information in this report is verified to the best of our ability and is assumed to be correct at time of release; however, Klako Group does not accept responsibility for any losses arising from reliance on the information provided within.