Shanghai Gets the Entrepreneurial Spirit : China Seeks to Pump New Life Into Decaying Industrial Center

SHANGHAI —  It began only two months ago. A group of factory managers, engineers and industry executives, with the blessing of the mayor of Shanghai, began holding regular meetings in an old hotel near the center of town.

Their purpose, a spokesman explained candidly, is to swap ideas “about how to make money.”

The group is called the Shanghai Entrepreneurs’ Club, and it is the first organization of its kind in Shanghai since Communist troops entered the city in May, 1949. The 500 or so members function something like an American chamber of commerce, openly propounding a business viewpoint to local government officials.

Still, as capitalist roads go, this is barely a dirt path. The club’s members gather in a cavernous public ballroom, and they are a far cry from the businessmen who, before 1949, frequented the old Shanghai Club relaxing at what was called the world’s longest bar.

Despite the organization’s title, virtually all its members work for state-owned or collective enterprises, not for private businesses. They include Communist Party branch secretaries assigned to Shanghai factories.

Campaign Launched

Formation of the Entrepreneurs’ Club is a reflection of the recent, belated attempt by Chinese officials to revive the flagging economy and the entrepreneurial spirit of Shanghai. In the past two months, worried authorities in Peking and municipal leaders in Shanghai have launched a campaign to infuse fresh life into China’s most important, but now decaying, industrial center.

Chinese leaders have a lot riding on the future of Shanghai. Shanghai is China’s New York, Pittsburgh and Detroit rolled into one--its center not only of trading and shipping but also of heavy industry. Shanghai accounts for one-ninth of China’s entire industrial output and contributes one-sixth of its revenues.

The campaign is tinged with irony. Shanghai, which has 12 million people and is China’s largest city, was once known as an entrepreneur’s paradise. Its inhabitants have long been regarded as China’s shrewdest wheelers and dealers.

Yet now, as China carries out a series of reforms aimed at giving free rein to profit incentives and individual initiative, government officials acknowledge that over the past 35 years Shanghai has become so linked to traditional socialist central planning that it will be difficult to change.

Indeed, according to a joke making the rounds, the last two places in China to carry out the new economic reform program will be Shanghai and Taiwan.

Presents ‘Stern Challenge’

In December, during a visit to Shanghai, Premier Zhao Ziyang said that China’s switch to a market-oriented economy presents a “stern challenge” to Shanghai.

“Shanghai is in a pretty grim situation because the time of cheap, state-allocated raw and processed materials and energy will soon be over,” he warned.

The People’s Daily, the organ of the Chinese Communist Party, said recently that “Shanghai’s position as an important financial, commercial and shipping center in the Far East has been weakened.” It said the decline results largely from “outmoded views” in Shanghai.

In what some see as the ultimate heresy for this stubbornly proud metropolis, Shanghai’s newspapers lately have been lauding the virtues of Canton, which Shanghainese have long regarded as a provincial town inhabited by unsophisticated people.

But Canton is closer to Hong Kong and to China’s special economic zone of Shenzhen, near the Hong Kong border, where the market-oriented reforms were first implemented. As a result, the Shanghai newspapers say, the spirit of individual initiative is more advanced in Canton.

“Cantonese self-employed workers are not afraid of making big money and showing their wealth,” the Shanghai newspaper Wen Hui Bao said. It said that after a tour of Canton and surrounding areas, a group of Shanghai visitors concluded that “the contrast between the two cities is just too much.”

Canton’s population is only half that of Shanghai’s, but a Shanghai newspaper recently noted that Canton has about 6,000 restaurants, of which 4,000 are privately owned, and that Shanghai has only 2,500. This is a tenth as many as Shanghai had in 1956, before Chinese officials began eliminating all traces of private ownership.

Economy Still Growing

Shanghai’s economy is still growing. Last year, the city’s industrial output increased by 9.5% over the previous year. But this figure is considerably less than the increase of 13.1% for China as a whole, according to the State Statistical Bureau.

Furthermore, most of the increase in Shanghai’s output was simply a result of more people working more hours with more materials, rather than to any increase in efficiency.

“The rise in productivity has not been satisfactory,” said Qin Benli, editor-in-chief of the Shanghai-based World Economic Herald.

Until the last few years, Chinese leaders had been accustomed to having Shanghai lead, not lag behind, the rest of the Chinese economy. So late last year, authorities in Peking and Shanghai held a series of discussions on how to revitalize this city. In September and October, the State Council, China’s version of a presidential Cabinet, dispatched a special “working group” of economic officials to Shanghai to help decide what should be done.

Shanghai officials reportedly complained that the city needs more money to rebuild its aging factories and infrastructure, and that too much of the money earned by the city’s industries is being siphoned off to the rest of the nation.

The city got at least some of what it wants. In mid-December, Premier Zhao informed Shanghai’s leaders that in 1985, the city will be permitted to keep an additional 1 billion yuan (about $350 million).

Budgeted for Facilities

“The premier brought us some good Christmas gifts,” Vice Mayor Ruan Chongwu joked in a recent interview. He said the money will be used primarily to build port, transportation, water and sewage facilities.

But along with the financial largess, Zhao delivered a series of admonitions that Shanghai should hasten the pace of economic reform. In particular, he said, Shanghai should take greater steps to attract foreign investment and should overhaul its industries with new kinds of management and wage incentives.

There are a number of reasons, political, economic and cultural, why Shanghai is not changing as fast as the rest of the Chinese economy. The first is simply that Shanghai has become so crucial to the nation as a whole that government officials are extremely cautious about requiring the city to change.

“They have to be very cautious with Shanghai because the place is just too important to their economy,” a Peking banker said. “If things go wrong in Shenzhen, they can always just lop it off and throw it into the South China Sea. They just can’t mess up in Shanghai.”

Shanghai officials agree.

“Shanghai is a city of the whole nation,” said Tang Qiusheng, a city official responsible for implementing the new economic reforms. “Other parts of the country watch Shanghai, so Shanghai has to set an example of stability, to walk steadily.”

Victim of Success

Second, Shanghai is in some ways a victim of its past success. It is now so developed and overcrowded that new economic growth has become difficult and expensive.

Shanghai has grown to its present size without any of the support structure that many Western cities have. City officials are only now beginning to plan the construction of a subway and a few kilometers of expressway to outlying areas. For the present, people and goods move in buses and trucks and on bicycles along clogged, two-lane streets.

Half of Shanghai’s factories date back to the 1930s and 1940s, and most of the rest were built in the 1950s. Shanghai now finds itself competing with more recently developed cities whose plants use newer technology.

“In South China, new factories are being built, using advanced equipment, turning out more advanced products,” said Wang Zixian of Shanghai’s Foreign Economic Relations and Trade Commission.

Shanghai’s port facilities last year moved a record 100 million tons of cargo, more than a third of China’s total and more than any U.S. port except for New York and New Orleans.

But Sun Xinkang, deputy director of the Shanghai Planning Commission, said the port was able to handle this volume only by increasing the number of people and shifts working the docks, and that, even so, many foreign ships were forced to anchor farther north in the Yangtze River because of the lack of berths in Shanghai. The city is now evaluating where and how to build new port facilities.

“Now we have some difficulties in our development, because for more than 100 years there was no overall plan for development of the city,” Vice Mayor Ruan said.

Underlying Mistrust

Shanghai’s difficulties have been compounded by the underlying mistrust of the city in other areas of China, where it has long been regarded as the captive of alien and Western influences. Those sentiments became even more pronounced after the agrarian-based Communist revolution.

The very first editorial published by the Liberation Daily, the Communist Party paper for Shanghai, in 1949, acknowledged that the city was “the economic and industrial center of China,” but also called it “the lair of the influences of imperialism, bureaucracy and feudalism.”

For most of the past 35 years, the central government’s approach has been to let Shanghai produce for the rest of China. Now, belatedly, officials in both Peking and Shanghai admit that the concentration of heavy industry in the city has hampered Shanghai’s general development.

“In the past 35 years, we put too much emphasis on production in order to support other provinces,” Ruan said.

Another reason for the slow pace of change in Shanghai is political. After 1949, the central government did such a thorough job of eradicating every vestige of capitalism in Shanghai’s political elite that the city leadership finally came to be more indoctrinated with radical Maoism than officials in other parts of China.

Mao Tse-tung had to circumvent Peking and enlist the help of Shanghai officials when he began the Cultural Revolution in 1965. The so-called Gang of Four officials, including Mao’s wife, Jiang Qing, who played prominent roles in the Cultural Revolution, all came from Shanghai.

Influence Lingers

While Shanghai’s leadership has changed over the past decade, the lingering influence of Maoism is still strongly felt here. Last year, the People’s Daily denounced what it called leftist thinking in Shanghai for holding back the city’s development.

“Until recently, we had not emancipated our minds enough,” said Tang, the city official supervising economic reforms. “Our thought was still under the influence of traditional concepts.’

For example, he said, in the 1950s Shanghai had between 150,000 and 200,000 households engaged in private business. By the end of the Cultural Revolution in the mid-1970s, he said, the number was down to 8,000.

“We must say, even now, it has not reached its earlier levels,” he said.

Tang maintains that the city will change more quickly now. Last year, Shanghai was among 14 coastal cities whose doors were opened to foreign investment, as in special economic zones such as Shenzhen. Now, Tang’s office is in charge of ensuring that the city’s enterprises carry out the central government’s new economic reform program.

Yet, Shanghai will be constrained by its own pride from merely copying the economic changes undertaken elsewhere in China.

Always Been the Best

“Shanghai’s always been the best,” a Western analyst said. “They’ve always negotiated the best deals in China. They feel the old methods have served them well, so why try the new methods?”

Vice Mayor Ruan, 50, who is Shanghai’s most important young leader, was asked whether Shanghai will try to duplicate the series of free-market reforms and tolerance of private enterprise that has been undertaken on an experimental basis in Shenzhen. He scoffed at the suggestion, and said:

“We can’t imitate Shenzhen. Shenzhen was a fishing village five years ago. Its industry is just starting to develop. We produce a sixth of the revenues for all of China, and what Shenzhen provides to the country is zero. If Shanghai imitated Shenzhen, the central government couldn’t support itself.”