Shanghai pushes for financial dominance

The approaching 2010 Shanghai World Expo raises the question of the financial future of China's Special Economic Zone, according to a February 24 New York Times article. Shanghai investment firms have recently looked to improving infrastructure to attract greater foreign investment and also keep mainland Chinese financial workers from leaving for Hong Kong for jobs. The China State Council has officially appointed Shanghai as the financial capital of the country, and to put the city on the map as a fiscally influential city. The government has been quick to spend whatever needed to make Shanghai an attractive center of investment, leading up to the creation of the World Expo to be held later in this year. Among the changes to be put in place in Shanghai's financial community are a lessening of taxation and currency restrictions, both indicators of China's growing liberalization of the economy. Recent investment ventures by foreign investment group Blackstone Group included environmental and energy initiatives in and around Shanghai, demonstrating the joint involvement of domestic and foreign financial firms.

Shanghai's new economic initiatives most obviously serve as an example of trends of economic change. With China close to the second largest economy in the world, it would be natural for Beijing to loosen the governmental restrictions in Shanghai to promote foreign investment. By opening up Shanghai to the rest of the financial world, China has demonstrated a growing focus in the private sector. This shift towards economic liberalization has brought about several public policy changes in infrastructure, economic liberties (specifically applied to Shanghai as a Special Economic Zone), and social welfare to attract more financial workers, who often go overseas or to Hong Kong. By building up Shanghai's economic performance, the Chinese government is working towards promoting domestic interests while attracting foreign interests. The need for greater foreign investment shows the onset of globalization, especially in cases such as China's, an economic powerhouse that depends heavily on the fiscal participation of other nations. China's willingness to privatize sectors of the Shanghai economy illustrates the huge impact of foreign companies' needs in order to do business in China.


Photo source: "riggslau," www.flickr.com/photos/riggslau




Grade This Post

The Current Status of Capitalism in China

About thirty years ago, China created the special economic zone of Shenzhen.

It is near Hong Kong and is one of the few places in China where the

government has not restricted business.

When Shenzhen was created, it flourished with new businesses because

entrepreneurs only had to comply with a few laws. They were allowed to

compete freely, and were not controlled in any way by China’s government.

This true capitalism created a massive city of millions of people willing to

work for very little money, which has caused a number of foreign businesses

to set up factories in the area because the costs of production are so much

lower than any other place.

Unfortunately, the economic prosperity is no longer bringing

in entrepreneurs at the rate it once was. A recent study has shower that over

the last five years, the population creating new businesses has dropped seven

percent. This trend is not only seen in Shenzhen, but in many other cities, at

least five other cities appear to be following the same trend.

This trend is correlated to two main factors. Shenzhen is running out of

land, and China’s businesses are taking some of the employees that once got

the best pay within the special economic zone. To find out more, read

The Economist’s article: The Spirit of Enterprise Fades.

These facts mean that there is an increasing amount of competition from

both inside China, and from global markets. This competition will not only

cause businesses within the special economic zone to lose employees to

areas within China, but they will also be forced to compete on a global market

that they are not used to because of their lack of investors.

The playing field will soon be leveled with these economic changes. This

could dramatically change the foreign and economic policy of many countries

when they find that their largest companies may be moving their production to

new locations around the globe.

Image.

Grade This Post.