The story of Shanghai is of two extreme. At one extreme, Shanghai is viewed as a model of economic development and as a symbol of a rising and prosperous China. At the other extreme, there is virtually no real knowledge about this city.
Much of the admiration for Shanghai is based on visual evidence. Although it is true that Shanghai has had excellent GDP performance, much of this performance seems to have only moderately improved the living standards of the average Shanghainese. A huge portion of Shanghai's GDP accrues not to Shanghai's households as personal income but rather to the government in the form of taxes and to corporations in the form of profits. Corporations in Shanghai are either heavily controlled by the government or their control rights are shared with foreign investments. The exalted GDP numbers translate into only modest levels of household income in Shanghai.
In the 1990s, Shanghai's GDP growth was not pro-poor and since the late 1990s, its growth has been sharply anti-poor.Whereas Shanghai households enjoy the highest wage level in the country, they earn very little money from their asset ownership.
There is no hard evidence that Shanghai is innovative. Despite a rich history of business creation and risk-taking, entrepreneurship is almost completely missing in Shanghai today.
Shanghai is rich but an average Shanghainese is not. A huge share of the economic gains go to the government and the state-controlled businesses. In 1980s, when Shanghai's GDP per capita declined against the rest of the country, the income of its average residents was actually gaining, and this was especially true for its rural residents. A state-controlled economy can grow without improving the economic well-being of its average residents.
Shanghai's per capita property income is very low (the sources of property income are comprised of interest and dividend payouts or income from property rentals)
Many observers believe that Shanghai experienced a Renaissance in the 1990s, but the truth is that for Shanghai's average households, the massive growth brought about very little in wealth creation.
The incomes from interest and dividend payouts represent the incomes derived from the savings set aside by households in previous years. That Shanghai's property income is so low indicates that there is a very low savings rate.
The growth in joblessness took an extreme form in Shanghai. In the 1990s, not only did employment grow at a slower rate than GDP, the size of employment actually contracted.
Shanghai started out as a leader in patents in the 1980s but ended as a laggard in the 1990s. Shanghai was showered with resources from the central government.
The Shanghai model has four integral components.
(1) a highly interventionist state
(2) a systematic and deep anti-rural bias in its economic policies
(3) a biased liberalization in favor of foreign capitalists at the expense of indigenous capitalists
(4) Shanghai is favored by the central government and might have been showered with massive resources
The Shanghai model, formulated in the last five years of the 1980s, was a precursor to China's anti-rural bias and repression of small-scale and labor-intensive entrepreneurship in the 1990s. The Pudong project, which in its essence ks built on a massive taking of land from rural incumbents, has had a powerful demonstration effect and was widely emulated in the rest of China beginning in the late 1990s. The Pudong model contributed to rising land grabs in China as many local governments sought to create their own versions of urban miracles. The tactics include forcible evictions of long-term residents, large-scale demolitions of existing housing stock, collusions with corrupt real estate developers, and below-the-market-price land requisitions.
Because of its privileged position in Chinese politics in the 1990s, Shanghai was able to amass a huge amount of financial resources supplied from the rest of the country.
In the 1990s, as the Chinese central state was investing heavily in a few urban metropolis such as Shanghai and Beijing, the same central government under-funded rural health and education.
Shanghai is the quintessential state-led capitalism.
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