The Pudong Bubble
Blurb: Canadian companies are flocking to set up shop in Shanghai, which China wants to make into East Asia's financial capital. But the city's economy, like the country's, is showing signs of overheating.

Shanghai-Ken Koo flipped through a hardcover brochure for one of his latest projects: a direct marketing venture to promote 18 plush villas in Western Shanghai, that start at $14 million U.S. He looked up and thoughtfully scanned the city growing skyline.

"A lot of people, have made a lot of money here during the last few years," said Koo, who heads Montreal-based Cossette Communciations's efforts to establish a beachhead in this hyper-lucrative market. "And now they want to show it off. That's why these villas have been selling like hot-cakes,"

Koo's not kidding. Spurred in part by the Chinese government's stated intention of turning Shanghai into East Asia's financial capital, the city has been growing by leaps and bounds. About 60,000 foreign businesses have already located here and about 500,000 Chinese are flocking in each year.

Last year the city banned bicycles from its major arteries to make room for the fleets of new cars. And according to one account, the city hosts 20 per cent of the world's cranes, though I stopped counting at 300.

The best evidence of the Chinese government's master plan for Shanghai can be found in Pudong. The state has poured billions of dollars into this city section located on the East bank of the Pu River, which two decades ago was mostly swamp and farmland.

But today Pudong is home to Shanghai's most visible feature, --the double-sphered Oriental Pearl Tower,-- a Formula One racetrack and a slew of skyscrapers that host some of the world's biggest companies. Construction recently began on what will be the world's tallest skyscraper.

With all the building that's going on, it's not surprising that many Canadian firms are trying to capitalize. Canadian companies have invested close to $700 million a year in China during the past five years, a big chuck of which is heavily tied into the building boom.

The Cossette division that Koo heads, Identica Brand Consulting, boasts a series of real estate clients including the Ritz-Carlton Shanghai, Sheshan Golf Resorts and several clubs in the city's trendy Xin Tian Di area.

In addition to Cossette, several other Canadian based players are riding the construction boom. Alcan operates a factory that produces the sheeting used on several of the city's most prestigious buildings. And about two dozen Canadian architectural firms are trying to get a piece of the action.

"I don't want to do a commercial for Shanghai, but it doesn't get any bigger than this in development terms," said Robert Mackenzie, Canada's consul general to the city. "It's a very exiting place to live."

Wolfgang Ueberschaer, general manager of the Alcan composites plant in Pudong has watched much of the city's development at close hand. The Quebec-based aluminum firm recognized China's potential early, and now has 3,200 employees on the mainland, of which 92 work in the plant he runs.

According to Ueberschaer, one of Shanghai's big advantages, continues to be its vast labor pool. Unlike many companies in Southern coastal regions, which are having a harder time finding help, Alcan still has a long lineup of potential employees. But he too concedes that some skilled positions are taking longer to fill.

"There are so many companies opening up that workers have more choice," said Ueberschaer. "It's not uncommon for someone to join a company, get training and leave after just a few years to get more money. Before, nobody did that."

According to Frederick Spoke, president of The China Way Group, which advises firms seeking to business in the Middle Kingdom, Canadian companies that eventually succeed have several things in common. Typically, they have taken the time to study the Chinese market, adopted a long-term strategy and have teamed up with a local partner or hired local management.

"Government plays a big role in the Chinese economy, so having someone with good knowledge and connections on the ground is almost essential," Spoke said.

But despite Shanghai's success, questions persist. The city's economy, --like China's as a whole,-- is showing signs of overheating. The Chinese government recently introduced measures to cool off real estate speculation. These have helped, but the real question remains as how much a government, even one as strong as China's, can channel economic development into one particular area. The state's tight control of information makes it hard to gauge just how well Shanghai's growth is tied to genuine demand and how much was forced on companies through direct and indirect pressure. For example Hong Kong's business community seems just as vibrant as Shanghai's, even though it has far less state support.

Another thing that struck me was that despite the promotion of Shanghai's Pudong area, of the 15 businesses, trade organizations and government officials I met with there, all except one, had offices in Pu Xi, the city's old Western quarter. So although the state wants people to cross the Pu River not everybody is listening.


Photo caption: Shanghai has experienced phenomenal growth in recent years and Canadian companies like Alcan, Cossette and The China Way Group are rushing to get a foothold. They coexist with what one account says are 20 per cent of the world's cranes.




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