Shanghai: A Guide to China’s Economic Powerhouse

Shanghai: A Guide to China’s Economic Powerhouse

Shanghai: A Guide to China’s Economic Powerhouse
23rd December 2021

Shanghai’s economic prowess is undeniable. With a population of over 26 million, Shanghai is the third most populous city in the world and as such has experienced multiple phases of rapid growth and development. Although not China’s capital, Shanghai is regarded as the country’s economic powerhouse – but why is the economy in Shanghai so plentiful and robust, and how did the success of business in Shanghai help establish it as one of just four direct-administered municipalities? Our guide has the answers.  

Location is everything

Port of Shanghai, business in Shanghai
The Port of Shanghai demonstrates the key role Shanghai's location played in establishing the city's economic success

Formerly a small fishing village, Shanghai’s fortuitous location is ultimately what led to its growth and success. Favourably situated on the southern estuary of the Yangtze River close to the East China Sea, the city has historically benefitted from access to resources, major trade routes, and international waters. For this reason, as China’s wealth and power flourished, so too did Shanghai – first transforming the small settlement into a garrison in the seventh century, then developing the town into a fortified stronghold during the reign of the Ming Dynasty. When China lost the first Opium War in the mid nineteenth century, western powers converged and exerted their influences on Shanghai. As the city was already a major hub of trade, the increased traffic between east and west transformed the city into a hub of international cosmopolitanism, as well as the wealthiest city in East Asia.

This history entrenched in trade cemented Shanghai’s prominence on the world stage, meaning that even after the economic downturn experienced during Mao’s Cultural Revolution, the city was able to quickly reassert itself as an economic force. When China fully resumed international trade in the 1990s, business in Shanghai once again rose to the forefront of China’s economy, and the city has prospered ever since.

Manufacturing Centre

Shanghai economy steel production
Steel production is still a prominent industry in Shanghai's increasingly diversified economy

China has built its prosperity on industrial practices, and in the 1950s the country placed specific focus on building the blast furnace capacity of its iron and steel industry. This, coupled with the machine manufacturing industry, led Shanghai to quickly became one of China’s leading producers – with the city’s Baosteel Group still recognised today as one of the world’s largest enterprises. As times have changed, the city’s well established machine manufacturing plants have adapted to produce sensitive and precise electronic equipment for computers and other instruments – meaning the city receives a steady stream of revenue from both the construction and technology sectors. In addition to assembling parts, the city’s factories also produce a great deal of finished consumer products such as cameras, radios and watches which funnels into the city’s developing service economy – mentioned later in this article.

China’s reliance on certain forms of production has led to criticism from countries that have switched to alternative, greener alternatives to curb pollution and carbon emissions. While the economy in Shanghai is not geared towards a complete revolution of its industrial processes, some changes are being made. The city’s chemical and petrochemical industries, for example, are more collaborative in their processes of production – moving towards light industry and away from the heavy industry typical of the 1970s which resulted in greater levels of pollution and energy consumption. This move towards more refined forms of production is indicative of China’s wider ambition to move towards higher-end manufacturing and move away from labour-intensive factories. While Shanghai has in no way abandoned such factories, it is slowly evolving to incorporate more high revenue manufacturing plants in place of older, shrinking production industries.

Although Shanghai imports more than it exports, the value of its exported products is more – and year by year the number of manufactured goods leaving Shanghai continues to increase.

Growth of the Tertiary Industry

Shanghai Financial Centre
The supertall Shanghai World Financial Centre skyscraper symbolises the new wealth brought to the city by the tertiary industries

China’s move towards a ‘more capitalist’ trade approach was steered by multiple five-year plans designed as stimulus initiatives to drive economic development. The ninth and tenth five-year plans (1996-2005) saw the rapid growth of Shanghai’s tertiary industry (service sector) – coming to account for 50% of the city’s GDP. This represented a paradigm shift for the city, bringing a consumerist service economy into the mainstream. In turn, business in Shanghai was transformed – with corporate trade and investment opening to the global market and ushering in a new age of cosmopolitanism.

Several key areas of the tertiary economy in Shanghai were stimulated by the economic reform of the 1990s and early 2000s: finance, logistics, retail, technology, and business. With many of China’s financial reform schemes piloted in Shanghai, the city quickly developed an impressive financial centre. Indeed, the city is considered to be the leading financial centre in the Asia and Oceania region, and the third largest in the world – supported by the hugely successful Shanghai Stock Exchange. Considered schemes to continue attracting investment – such as the Pilot Free-Trade Zone launched in 2013 – ensures that the city retains its impressive allure on an international scale.

The propulsion of the tertiary industry in the city also brought a renewed interest in tourism and business travel. In 2017, over 318 million domestic tourists and 8.7 million overseas tourists visited the city – making it the highest earning tourist city in the world. As a result, the number of serviced apartments in Shanghai is also on the rise, as the city today caters to visitors from across the globe looking to their financial investments in the city and wider East Asia region.

If your corporate travel plans will take you to China or Asia in the months ahead, be sure to read our guide to the top 7 cities in Asia for corporate travel, as well as our APAC specialist Eric’s rundown of the region’s best serviced apartments.

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