Shanghai strengthens its position as an economic hub

305_Shanghai_market_analysis

Skyscrapers reach for the clouds in Shanghai’s Pudong district, a dazzling embodiment of China’s economic growth and a manifestation of the rapid structural changes that have recently taken place in the country’s most economically dynamic region. As part of this development, various service industries are popping up alongside products manufactured for export.

The economy of Shanghai has grown quickly in recent years – sometimes at a 12 per cent yearly rate. This year, due to economic hardships in China’s most important export markets in Europe and North America, growth will most likely be between eight and nine per cent.

Jouko Rautava, economist at the Bank of Finland, welcomes a slight slowdown, explaining that the economy of China has long shown signs of overheating. The country began a massive resuscitation effort after the financial crisis of 2008, and inflation sped up as a result.

During the last few months the pressure of rising prices has eased somewhat. In Shanghai, for example, the vehement rise in housing costs has slowed down, and in some cases prices have even gone down. 

An economy built for expansion

The strong foundation of Shanghai’s economy originates from economic reforms that were instituted in the 1980s. Business areas offering special tax breaks were established on China’s eastern coast to attract foreign investments.

One manifestation of fast growth has been the rise in salaries and other operational costs; in turn, manufacturing industries have moved to cheaper regions in China. This structural change is sped up by official policies that support it.

Businesses built upon top expertise and services are increasingly emphasised in Shanghai’s economy. Plans to make Shanghai the area’s most important financial centre are underway now that the yuan is gradually becoming a freely tradable currency in international markets.

”In financial markets, Shanghai’s biggest competitor is Hong Kong,” Rautava says. 

Demand and challenges for cargo

The emerging hubs of China’s eastern coast are also competing for the flow of goods. Shanghai has become the world’s largest container port, while the Pudong International Airport is the most notable in continental China. It is also the world’s third largest air cargo hub.

”Only Hong Kong and Memphis surpassed Shanghai in the amount of air cargo last year. Nearly every big cargo airline flies here, including Finnair and its partners, ” says Tomi Asikainen, Finnair Cargo's area director in Asia.

Despite good growth projections, China’s air cargo market has faced challenges this year.

”Air cargo is suffering from overcapacity, and the slowdown in China’s growth is also affecting this industry.”

Demand usually peaks in the fourth quarter, but we haven’t seen that this year; excluding small peaks, demand for air cargo has remained flat.”

Brand-consciousness spurs growth

Asikainen, who lives in Shanghai, estimates that despite hiccups in world economy and accelerated inflation, the level of consumption in China has remained relatively high.

“Shanghaians spend money on brand names. The car market, for example, is still hot. People are even buying luxury brands such as Ferrari, Porche and Maserati.”

Jouko Rautava notes that speeding up demand at home is an important challenge for China’s economy.

”Private consumption takes up only 35 per cent of the GDP in China; in developed nations the percentage is often between 5060 per cent, or even more.” 

Text by Matti Remes
Photo by iStockphoto 

Published November 23, 2011

Category: Local features, Market updates

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