May 6, 1996

The Swamp That Became A Gold Mine

ERIC ELLIS, Shanghai

China has moved further down the capitalist road, as Eric Ellis reports from Shanghai in the first of a series on how the market in the "socialist market" economy is challenging the grip of Beijing's rulers.

TAKE a swamp, add money, a large dose of political patronage, some of the world's ugliest buildings, as little ideology as possible and what do you get?

The answer is Shanghai's over-heated Pudong development zone, an economy expanding at 20 per cent a year and a Singapore-sized pocket of affluence contributing 25 per cent of Shanghai's economy. And all in just three years. As Paul Keating remarked in 1993 while looking over Pudong from the massive Nanpu Bridge which has Deng Xiaoping's handwriting engraved into it, "Shanghai's gunna go gangbusters."

He didn't have to be Milton Friedman to see that.

Pudong is like Shenzhen on steroids with a Manhattan skyline. Where the economic "miracle" of Shenzhen - China's booming Special Economic Zone bordering Hong Kong - was created in 10 years, Pudong has sprouted from a swamp in three, helped in large part by heavy financial backing from a guilty Japan, which China still manages to beat around, when appropriate, for its military attacks during the 1930s.

Pudong's rise is all the more remarkable given that Deng Xiaoping once said that if he'd made any mistake at all during his 17 years of economic reform it was in not designating Shanghai as an SEZ like Shenzhen.

But another of Deng's mistakes may also have played a factor in Pudong's rise and Shanghai's re-emergence as a business centre - the 1989 Tiananmen Square massacre.

The Beijing tragedy brought one million Hongkongers on to their streets in protest, almost a fifth of the then population.

Hong Kong's "disloyalty" to the motherland forced new plans, and Beijing put aside its traditional wariness of Shanghai to push it forward.

It seems everything about Shanghai's Pudong is measured in superlatives. It is the biggest construction zone in China and attracts the most foreign investment, some 60 per cent of the contracted $US10 billion. BHP and Foster's Brewing are two of the 20-odd Australian companies operating out of Pudong.

Pudong is also planned to have China's biggest port, airport, power station, free trade zone and skyscraper. It also has China's highest real estate prices, among the highest in the world.

Two more of Shanghai's "bigs" are Shanghai Cable Television, which claims to be the world's biggest cable-TV operator, and the Shanghai No 1 Department Store, which reckons it holds the world record for the number of customers.

Run by a 25-year party member and former Red Guard, Shanghai Cable is partly owned through the municipal government and its broadcasting arms.

With satellite dishes proliferating, and Rupert Murdoch buying Star TV in Hong Kong, Shanghai Cable went to air with 70,000 subscribers in early 1993, trying to lure viewers back to statesanctioned programming. Today it claims 1.5 million subscribers in a catchment area of 14 million.

When asked if Star or another foreign broadcaster could negotiate to introduce a service on Shanghai Cable's spare slots, the operation's chief editor, Ms Chen Wen, said: "Star TV is considered bad in this country. They get things incorrect."

At the No 1 Department Store, vice-president Mr Lang Jifang reckons politics just gets in the way of business. He was the manager of the bedding department in 1972 when Richard Nixon came to town in the famous first rapprochement between the US and "Red China."

And in 1992 when Deng Xiaoping "dropped in", Mr Lang had just been appointed store vicepresident. "We had to shut down the store on these two days and we had no sales," he remembers.

According to Mr Lang, who started work a salesman on 40 renminbi ($6) a month (he now earns Rmb2,500 as vice-president), the store, with 21,400 square metres of retail space, now attracts 100 million customers a year.

This year it will record sales approaching Rmb2.5 billion ($380 million).

"The customer is god," Mr Lang said. "We put a lot of emphasis on customer service but we must admit there are still big gaps to Western and Hong Kong standards."

Shanghai is a shopper's paradise, and the No 1 Department Store is no longer the only place to buy the only consumer items that hard-line communism provided.

It has responded to the new market by going public and using the raised capital to begin an ambitious expansion with new stores across the city.

But the old store on Narijing Road will stay as the flagship, its distinctive architecture protected by city decree, indicating that even in the new China it's not always a matter of discarding the old.