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Automation Technologies 5/2016

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Automation Technologies 5/2016

UPS AND DOWNS in the

UPS AND DOWNS in the story of Shanghai’s globalization NEWS AND MARKETS Sushen Doshi A brief tour of Shanghai’s evolution as an industrial, financial and cultural center, the current economic situation in China and how Shanghai, in particular is undergoing reforms to ensure short term economic stabilization and long term growth. E th conomic globalization of Shanghai started in the middle of 19 century, when the city was pulled into the world market after the first opium war. The demand for tea, silk, and other Chinese products increased exponentially in the 19 th century, which provided a massive opportunity for Shanghai’s globalization. With the rich and vast hinterlands of the Yangtze river valley, the city quickly emerged as a booming international centre of trading. By the 1920s, Shanghai was amongst one of the 15 largest trade ports in the world. By the end of 1940s, the imports and exports of Shanghai made up more than 50 % of China’s total foreign trade. Stimulated by the expansion of international trade, Shanghai’s industry prospered with a large number of modern factories now being set up in the city. With the advanced technology and equipment, these new enterprises transformed Shanghai into China’s modern industry center. By the early 1930s, about half of China’s manufacturing companies were located in Shanghai, employing majority of China’s industrial workers and manufacturing half of China’s total industrial products. Apart from the manufacturing sector, financial institutions like modern banks, insurance agencies, stock market, commodity market, and other business institutions, started popping up one after another. By 1940s, Shanghai had undoubtedly consolidated its position as China’s financial center, modern industrial center, international trade center, as well as cultural center. However, Shanghai hit a roadblock after 1949, when it was forcefully de-globalized due to the then geo-political complications. Most foreign companies had moved to Hong Kong by 1949, as they could not survive due to unreasonably high taxes and numerous restrictions. It was pulled off its course of growth and globalization. Compared to other Asian cities, such as Tokyo, Singapore, Seoul, and Hong Kong, all of which experienced spectacular growth after the 2 nd World War, Shanghai was left far, far behind in the next three decades. After decades of economic downturn and bankruptcy, in 1990 China’s top leader Deng Xiaoping took a significant step by making Shanghai the focal point of China’s economic reform and setting up the special economic zones in the region and opening the city’s shores to world. From that time on, the epicenter of China’s reform shifted decisively from Guangdong back to Shanghai. The 1980s was regarded as the “Guangdong era,” represented by Shenzhen but the 1990s started a whole new “Shanghai era.” Shanghai made very bold moves to re-initiate or simply invent crucial institutions for China’s market economy. The Shanghai Stock Exchange opened in 1992 and gold, metal, and other commodity exchange markets were re-established one after another. The establishment of these institutions and market systems provided great opportunities for Shanghai to get necessary capital and crucial manpower for improving and upgrading its economic capacity, thus competing in the world market. To accelerate Shanghai’s economic development, the government of Shanghai was determined to make changes to reduce red-tape and bureaucracy, so that government officials would provide investors real help in acquiring the necessary approvals to set up new businesses. This led to Shanghai’s foreign trade expansion even faster. For more than 15 years, until to 2007, Shanghai’s international trade value jumped more than 20 % annually. By 2008, Shanghai’s import and export Author: Sushen Doshi, correspondent India for AUTOMATION TECHNOLOGIES AUTOMATION TECHNOLOGIES 5/2016

data released by the National Bureau of Statistics (NBS). The figure, though the lowest quarterly rate since the global financial crisis, remained within the government’s targeted range of between 6.5 and 7 % for 2016. China’s economic stabilization is set to continue, with major indicators operating in a reasonable zone while economic structural reforms continue to advance as planned. The Industrial output expanded 6.2 % year on year in June, accelerating from a 6 % increase in May. The growth of China’s Industrial output in June was mainly due to strong performance in the high-tech and equipment manufacturing sectors. The upbeat reading for industrial output was among a series of economic indicators, pointing to more signs of a stabilizing economy. In addition, the structure of China’s industry is also improving, with output in energy-intensive and lowend sectors stagnating or even declining and industrial output for high-tech equipment manufacturing sector rising more than 10 %, much faster than overall growth. value reached $ 322 billion. By 2010, Shanghai became the world’s busiest cargo port. In 2014, Shanghai’s ports handled 755 million tons of cargos with more than 35 million containers, far more than any other ports in the world. Though the Chinese economy as a whole has made great progress over the past 30 years, Shanghai obviously achieved the most economic success among China’s 31 provinces, metropolitans, and autonomous districts. In 1990, Shanghai’s per capita GDP was more than $ 1,000 for the first time. Five years later, in 1995, the per capita GDP doubled to $ 2,000. The figure doubled again and again and reached more than $ 11,000 in 2010. After 20 years of double digit growth, Shanghai’s GDP reached more than $ 350 billion in 2015. Despite constituting only 1 % of China’s population and 0.06 % of China’s land space, Shanghai contributed 1/8 th of the national revenue. China’s current economic situation The global economic situation is grim and China along with other major economies must find ways in tackling sluggish growth and weak trade. At the end of 2015, China posted GDP growth figures at 6.9 %, one of the slowest growth rate witnessed by China in the last 25 years. In summer of 2015, the Shanghai stock market crashed heavily raising doubts and concerns for investors worldwide. By the end of 2015, the market had made a decent recovery, but the start of 2016 saw the markets stumbling again. To generate growth, Chinese government is taking measures to stabilize its short term growth by increasing infrastructure spending, easy credit and ramping up exports. But with growing debt and too much factory capacity, these tools the government has traditionally used to revive growth, appear increasingly ineffective in the long run. In the first and second quarter of 2016, China’s economy grew slightly faster than expected, further rising hopes that the economy has entered a steady but slower period of development. The country’s GDP grew 6.7 % year on year in these two quarters, according to Shanghai’s industrial upgrades now reaping increased profitability According to the latest reports from Shanghai Commission of Economy and Information Technology, the regional government’s efforts to upgrade and restructure industries have powered the city’s manufacturing sector to lead in profitability and sales nationwide. Its manufacturers enjoyed a profit margin of over 8.1 % and achieved 100 % in sales-output ratio in the first four months of the year. The city has upgraded its industrial structure with more advanced industries such as new energy and robotics. The output of new energy and robotics in Shanghai grew by double digits this year. The scale of Shanghai’s integrated circuit industry has surpassed all other cities in China. Innovative application of robotics is one of the key factors driving Shanghai in its industrial transformation. The city has proposed to build 10 national innovation or design centres for the integrated circuit, intelligent manufacturing and nuclear energy sectors. As part of “Industry 4.0” - the next generation manufacturing, which needs automation and digitization - the city is planning to build 100 model plants in automobile, electronics, machinery and chemical industries. Shanghai’s new set of reforms This is the era of drastic changes in China, with annual growth now no longer in double digits, the country is now moving from exportdriven economy towards increased domestic consumption. This tectonic shift in China’s policy and rising costs has urged many foreign-invested manufacturers to transfer their operations elsewhere in Asia. This is putting pressure on the Chinese government to undertake new reforms and offer new incentives for FDI and thereby sustain economic growth. As one such measure, the Shanghai FTZ is offering a unique package of preferential policies and adoption of “Negetive List” approach, under which under which foreign investors enjoy equal treatment as Chinese domestic enterprises in any industry. This substantially reduced restrictions on foreign enterprises in areas including general manufacturing and the finance industry. Wholly foreign-owned enterprises will now be approved even in industries such as oil exploration, mining and component manufacturing. Further, foreign investors will benefit from relaxed restrictions on the percentage of shareholder equity that must be controlled by the Chinese partners to joint venture across a number of industries. This new set of reforms are creating fresh opportunities for businesses in China, and opening new avenues into industries that were earlier restricted to foreign investment.z AUTOMATION TECHNOLOGIES 5/2016