What we know about Shanghai is wrong

Perhaps you have seen the picture below. It truly is remarkable that in roughly 20 years the Shanghai skyline changed so dramatically and it has often been used as a symbol of China’s roaring economic and political power ascendancy.  I myself have used the picture in passing to reference the larger Chinese economic growth miracle but the more I learn the more China’s current problems are revealed in the same picture.

shanghai

Pictures are deceptive because they can both contain and leave out a lot of information. Shanghai is far more wealthier today than 20 or 30 years ago and on a per capita basis is much better than most of China. Yet while Shanghai is prosperous, native Chinese in the city by and large are not.

In the late 1980s both poorest and wealthiest citizens saw their incomes increase by 6 and 7% respectively. That by any definition is inclusive growth or pro-poor growth. By the early 2000s something had changed. the top 10% grew by more than 15% whereas the bottom decile saw their income decrease by almost 4%! What happened?

In the aftermath of the Tiananmen Square uprising, party officials centralized power in all facets of the country. Pro-poor growth led by entrepreneurs gave way to the top-down state-led capitalism that China is famous for. The gains of the 1980s had been stripped from the people and given to the state to launch their ambitious urbanization projects.

Today the Communist Party and corporations have soaked up all the gains that can be visualized in the picture. What lost out was entrepreneurship and education. Shanghai is greatly lagging in all these areas. While big business is done in the city, it is lead by State-owned Enterprises and Foreign Corporations. Employment in the 1990s actually decreased despite the massive growth of the city. This is further explained by tax information that shows that the rest of China has been in fact subsidizing the city. Patent activity from the Ministry of Science and Technology also show that Shanghai is lagging.

Why do we all believe in the success of Shanghai? Because we know so little about China. How many have spent significant time in the country and/or studied it records (which are often biased)? Jayant Patil, finance minister of the Indian state of Maharashtra once lauded Shanghai’s 450 km bullet train without knowing that the train actually only runs 30 km. His statement was emblematic of the misconceptions that foreigners have about Shanghai and the rest of China.

China has done so much well but as in all aspects of life past choices will eventually catch up with you. The teetering of China’s economy today is rife with issues finding their roots in the 1990s when there was a reversal of the pro-market (and ultimately pro-poor) policies that reigned supreme in the 1980s.

Source: Capitalism with Chinese Characteristics – Yasheng Huang

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