Shanghai industrial boom produces office-space glut
By Edward Neilan
Hong Kong's position secure as financial center despite long- term improvements in Shanghai.
SHANGHAI (JP): Forget the hyperbolic premise being dispensed widely that Shanghai is about to take over from Hong Kong as China's leading financial center.
The predictions that such an eventuality will happen in "five or ten years" are the purest form of boosterism.
Make that "20 or 25 years" and you may have a bet, if all goes smoothly. But by that time, say by 2020, there will be plenty of business for both locations as Shanghai's sheer numbers will begin to prevail.
Today Shanghai has 15 million population, making it the world's fifth-largest city or "urban agglomeration" after Tokyo (26,5 million), New York, Sao Paulo and Mexico City. By 2015, according to United Nations projections, Tokyo will move to barely 28 million but Shanghai will jump to 23,4 million to rank second contending with fast-growing Bombay (now called Mumbai), India.
Hong Kong at 6.3 million is a match only for its high productivity and what might be called intellectual infrastructure. Hong Kong's refinement as an information and service center, particularly for financial dealings, is awesome and for as long time it will be mentioned in the same breath with Tokyo, New York, London and Singapore.
The jury is still out, of course on Asia's current financial crisis. Next to be hit will be China with its greatly over-valued Renminbi currency. Hong Kong's strength and importance is shown again: if the Hong Kong dollar peg to the U.S. dollar were ever dropped, China's new economy based on flotations on the Hong Kong stock market would go "poof."
That is one reason why the peg will remain.
Shanghai is just finishing the first infrastructure stage of its redevelopment. The nifty array of elevated highways eases traffic, to be sure, but also gives a stunning view of the emptiness of the literally hundreds of skyscrapers built on speculation or at government prodding or both.
"Somebody up high passed the word to the banks to make sweetheart loan deals," said a Western diplomat. "It makes for a kind of eerie skyline of vacant buildings."
The situation defines the term glut. Office building vacancy levels stand at 40 percent on the average and in some districts may be 70 percent, analysts say.
Office and apartment rents have tumbled 30 and 40 percent from levels a year ago that were among the highest in the world. Some analysts say prices will fall another 20 to 30 percent by early 1999 as new office space comes on line. Already a syndrome is seen of some firms moving from expensive locations to cheaper premises which were occupied only a year.
The over-building has just begun. The other day in Pudong I stood at the foot of the Japanese Mori building and couldn't see the top of it in the fog. When completed, it will be the world's tallest building, of course including a five-star hotel on the premises. Just down the street will be the world's second-tallest and fifth-tallest buildings and the largest shopping mall in Asia.
Chinese authorities -- keep in mind that President Jiang Zemin and economic czar and Premier-to-be (April) Zhu Rongji are from Shanghai -- have proven themselves adroit at mobilizing OPM -- "other people's money -- for Shanghai's development.
Through September this year, according to the Shanghai Municipal Statistics Bureau, Hong Kong leads in foreign business contracts with 6,960 projects totaling US$11 billion, Japan is next with 2,178 projects worth US$4 billion, the U.S. is third with 2,209 projects worth US$3 billion and Taiwan has 2,354 projects worth US$1.6 billion.
Japanese seem to be switching their emphasis from Beijing to Shanghai.
"Unlike the 1980s when most Japanese investors in Shanghai were small-sized businesses, many multinationals are now investing here," said Zhang Peiping deputy director of the Shanghai Foreign Investment Commission.
He said that by end of last year 50 of the Fortune top 100 industrial giants had invested in Shanghai and among them were 11 Japanese firms. He mentioned Hitachi, Matsushita, Sony, Toshiba, Honda, Fujitsu, NEC and Sharp as leading names.
There are now more Japanese living in Shanghai (about 6000) than in Beijing (about 5000). Americans in Shanghai number only about 2000 compared to about 6000 in Beijing according to estimates from business and diplomatic sources.