Inside Story

Shanghai sling

Although it symbolises China’s embrace of the market economy, Shanghai is still very much shaped by the party and struggling to overcome entrenched corruption, writes Peter Browne

Peter Browne 28 January 2011 2240 words

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ON an unexpectedly warm Shanghai evening a few weeks ago a Russian-born pianist, a Mauritian drummer and an American bass player were halfway through a breathtaking set of jazz standards while a bar full of young professionals drank, talked and occasionally tuned in to the music. It was late 2010, but there were echoes of balmy nights in the decades before the second world war, when Shanghai was the most open, cosmopolitan city in China, when Russians, Americans and perhaps even Mauritians mixed with traders, refugees and would-be revolutionaries, and when visitors like the Indian diplomat K.M. Panikkar (Shanghai is an “unreal, fantastic creation”) and Aldous Huxley (“the spectacle of it inspires something like terror”) came to see the famous city for themselves.

Shanghai’s reputation as “the Paris of the East” became a cliché, but it was a cliché that would have a significant impact over the next half century. The city’s hybrid character had developed after 1842, when the Treaty of Nanjing opened up Shanghai and four other Chinese ports to Western trade, attracting European and American entrepreneurs and waves of displaced Russians and exiles from Europe. Combined with the energy of local traders and migrants from inland China, these new arrivals created a new kind of dynamism. By the 1930s Shanghai was one of the world’s five most important commercial centres and its second-busiest port, responsible for 40 per cent of China’s industrial output.

Those dynamic years also created a diverse and visually arresting urban landscape. As the journalist Duncan Hewitt writes in Getting Rich First, “as well as high-density terrace housing, Shanghai had luxury red-brick apartment buildings like those of 1930s north London; English-style corner cinemas and fire stations; churches of all types, from Methodist to Russian Orthodox,” together with a remarkable collection of art deco and modernist hotels and office blocks. Nearby, many of the city’s poorer residents – Shanghai’s population had already exceeded three million – were crowded into slum housing.

Inevitably, Shanghai’s free-wheeling milieu, dampened but not crushed by the second world war, clashed with the mood of the revolutionary forces that took the city in May 1949. “Shanghai is a non-productive city,” declared one newspaper as the communist government tightened its control later in 1949. “It is a criminal city. It is a refugee city. It is the paradise of adventurers.” To deal with this unruly agglomeration, the secretary of the local party committee proposed (unsuccessfully) that half the population be dispatched to the countryside.

But Shanghai was also where the Chinese Communist Party had been established in 1921, and the communist government’s decision to keep the city on a tight leash after 1949 reflected and reinforced the tension between the city’s entrepreneurial past and its role in prerevolutionary agitation. Later, during the Cultural Revolution, it became the epicentre of Maoist radicalism, and – echoing that moment back in 1921 – it was the city in which the Gang of Four cut their political teeth. The result was that by 1990, when the Australian journalist Yvonne Preston visited, the once-thriving riverfront finance precinct, the Bund, was “drab and decaying.”

Another twenty years later, the city – and especially its new high-rise business district, Pudong – again symbolises what is most modern and prosperous about China. Because it wasn’t among the regions designated as a major development area in the 1950s, Shanghai escaped the brutal Soviet-style development that blighted many communist countries during those years. It also missed out on becoming a “special economic zone” in the first round of economic liberalisation in 1979. So it was only in the early 1990s that the city began to grow significantly.

But once started, the pace was breathtaking. Visitors saw tracts of old housing demolished by aggressive property developers and government agencies to make way for office blocks, apartments, freeways and, less predictably, new parks. A fast, modern metro system was installed beneath the city streets (and extended – making it the world’s largest subway network – in time for the 2010 Expo), expressways cut through the city, urban development spread into the surrounding delta, and a high-speed rail service linked the city with Beijing.

Despite the pace of demolition, the prewar landscape is still evident in the layout of the streets around the bar where the jazz trio was playing and in the striking variety of architectural styles across the inner city. Villas and mansions built to house foreign merchants and diplomats early last century, then occupied by large numbers of families during the second half of the century, are being restored and reused as hotels and residences. Medium-density houses grouped around a maze of courtyards have become sought-after locations for galleries, boutique hotels and cafes, while across the road a new office block or apartment development rises dozens of storeys. Binding it all together are closely planted trees, giving the streets a human scale almost regardless of the height of the buildings.

This part of the city, the old French Concession, is probably the largest semi-intact part of Shanghai. Still surviving are some of Shanghai’s late-nineteenth-century lilong neighbourhoods, with their distinctive pattern of terrace houses grouped around narrow lanes. City-wide, according to the architectural historian Jay Pridmore, 90 per cent of these houses have gone, demolished during the 1990s and early 2000s, and those that remain are beginning to be colonised by galleries, cafes and bars. In adjoining streets, 1920s European-style mansions and villas are being turned back into single-owner residences or converted into hotels, creating a quite different landscape from the high-rise development sweeping much of the city, and especially across the river in Pudong.

The new cityscape owes a lot to the decade or so from the mid 1990s when a group of government officials and party figures – the same people who presided over the commercial and transport schemes attracting international admiration – were extracting increasingly large bribes from property developers in return for removing regulatory obstacles and blocking resident opposition. These were the years when some of the best and worst developments changed the face of Shanghai, including the expansion of the metro, the construction of the experimental Maglev train track from the city to the airport, the spectacular lighting of the Bund, the successful bid for Expo 2010, the installation of a $300 million-plus Formula 1 racing track and the demolition of architecturally significant buildings.

Eventually, the extent of the corruption became too great for the national government to ignore. And among the triggers for the most spectacular fall from grace during that period – the arrest on corruption charges of Chen Liangyu, who was appointed deputy mayor in 1996 and mayor in 2002 – were disputes between developers and the residents they were seeking to displace.

Zhou Zhengyi was a Shanghai-based property developer who had rocketed to influence and wealth in less than a decade, making him among the richest people in China. In 2003, a series of protests, tip-offs and court actions, many of them implicating Shanghai officials in large-scale bribery, brought him to the attention of the government in Beijing, which dispatched a team of investigators from the Central Commission for Discipline Inspection, China’s under-resourced anti-corruption body. They detained Zhou and handed him to the city authorities for further action.

Already – as the Financial Times’s Richard McGregor recounts in his new book about China’s leadership, The Party – the Shanghai government had responded to the anti-demolition protests by arresting one of the lawyers acting on behalf of residents who’d mounted a case against one of Zhou’s developments. Once Zhou was in the city’s custody, writes McGregor, Chen Liangyu thumbed his nose at Beijing by charging him with minor offences that had nothing to do with the real estate scandals. Zhou spent two years of a three-year sentence in prison, bribing officials to provide him with extraordinary privileges, and then returned to the property business.

The story might have ended there if not for a shift in national economic policy. Chen’s style of government assumed that an ever-expanding Chinese economy would continue to drive the city’s investment-driven momentum. But in May 2004 the central government announced a credit squeeze to rein in surging investment, threatening Shanghai’s continuing growth. During a Politburo briefing on the decision, Chen challenged the premier, Wen Jiabao, arguing that the squeeze would endanger the city’s growth. “By taking on Wen so openly,” writes McGregor, “Chen had turned a difference over economic policy into a dangerous, top-level political dispute.”

Up until this point Chen and his allies had been protected by a group of senior Communist Party officials from Shanghai who had dominated national politics for a decade. The most senior of those officials was the president from 1993 to 2003, Jiang Zemin (who, writes McGregor, retired to a “large, secluded house down a dead-end street in the old French Concession, a location so sensitive that it was obscured on city maps”). Once the power of the “Shanghai gang” began to wane, Chen was out on a limb. Under questioning his colleagues provided evidence of how he had enriched his own family through dubious property deals and accused him of masterminding a scheme that channelled a breathtaking US$270 million out of the city’s superannuation fund. By mid 2007 he was in jail.

Back at the interface between residents and developers, the publicity the Zhou case had attracted, “along with the central government’s high-profile campaign, announced in 2005, to create a ‘harmonious society,’ did seem to lead to some attempts to reduce the bitterness surrounding Shanghai’s relocations,” writes Duncan Hewitt in Getting Rich First. “There were still complaints from residents – but property developers now also began to grumble that moving people out of their homes was becoming more and more complicated.”

OTHER problems had also taken root in Shanghai during that period. While private enterprise was making a significant contribution to the growth in production and employment in regions like Zhejiang and Guangdong, local businesses in Shanghai were being squeezed between the large government sector and the foreign companies favoured as partners by the government. The relentless pace of development during those years hid from view not only the corruption among senior officials but also the fact that many local entrepreneurs were marginalised and relatively powerless.

According to the US-based economist Yasheng Huang, who dug through the primary sources in the mid 2000s to find out how economic policies were affecting different parts of China, by 2004 only Beijing and Tibet had fewer private businesses than Shanghai relative to population size and number of households. Huang also found that during the 1990s and early 2000s, fewer patents were registered in Shanghai than in Zhejiang and Guangdong – a reversal of the pre-1990 situation that he attributes to the lack of private businesses. As McGregor says, “Few visitors admiring the skyscrapers realised that most of them had been built by city government companies. Far from being the free-wheeling market place that many westerners believed, Shanghai represented the Party’s ideal, a kind of Singapore-on-steroids…”

In some circumstances this level of government control and ownership, coupled with high growth, might have translated into higher and more equal incomes among ordinary Shanghainese. But Huang’s figures show that this didn’t happen. Although the city’s economic output per person is more than five times greater than China’s as a whole, incomes are less than twice the national average – and, in the middle of the 2000s at least, the income of the city’s poorest residents was falling. Using Shanghai government data, Huang shows how the growth in incomes in the city has become markedly less equal over the past quarter century. In 1986–88, for example, all groups recorded a modest gain of between 4 and 7 per cent each year; fifteen years later, the poorest households were losing ground while the richest were recording annual gains of 10 per cent or more.

What is striking is the gap between the two lowest income groups and the other five categories – three middle-class groups and the two high-income groups. This is partly a result of the Shanghai government’s “anti-rural” policies, wrote Huang: “As recently as 2005, rural Shanghainese, who still accounted for a sizable share of the workforce, had about the same income level as they did in 1989 relative to the rural income level of the country as a whole.” But it also reflects the fact that Shanghainese received relatively less income from business activities than their counterparts in other prosperous regions.

Corruption is only part of the reason for Shanghai’s distinctive pattern of development – a pattern that Yasheng Huang believed was spreading to other parts of China (although more recently he has detected some improvement in the city’s policies since Chen was unseated). But corruption could prove to be a source of greater tension as members of the city’s growing middle class demand greater transparency and government enforcement of the rule of law.

The fact that eradicating corruption will be an enormous task was underlined by the investigation into an apartment block fire that killed fifty-six people in November. The mayor of Shanghai, Han Zheng, admitted that very poor regulation of the construction industry was one of the contributing factors. An editorial in the state-run China Daily went further, pointing out that the building had been renovated without the legally required bidding process, and the company that received the contract, and then cut corners with fatal results, “was none other than the one directly attached to the district government.” Shanghai’s exuberant past, warts and all, is proving extremely resilient. •