Shanghai is the new Detroit

PUBLISHED : Saturday, 20 July, 2013, 12:00am
UPDATED : Saturday, 20 July, 2013, 3:17am

General Motors' latest annual report includes a map highlighting its No 1 position as a carmaker both in China (including joint ventures) and in the US - the world's two biggest markets. GM's manufacturing operations at home are in Detroit and, away from home, are in Shanghai. But the two cities have little else in common.

What sets them apart now is that Detroit has become the largest American city to file for bankruptcy protection.

To people who read balance sheets, the collapse had long been a matter of when, not if, after the flight of the white middle class to the suburbs to escape racial tension eroded the city's revenue base. But to anyone else, in thrall to the American dream or not, it must seem scarcely believable that the city that rose to become the centre of the international auto industry and symbolise America's unprecedented industrial might, will now has to negotiate with its creditors. This is the city, after all, whose carmakers once turned from automobiles to planes and tanks almost at the flick of a switch, and played a big role in the defeat of Japan and Germany in the second world war.

Detroit had a brush with bankruptcy before, when GM and Chrysler entered Chapter 11 protection during the global financial crisis in 2009 and exited on the back of a US$80 billion federal bailout. The White House has quickly dashed hopes of a similar rescue. The city and its creditors face a long and costly wrangle in uncharted legal territory over more than US$18 billion debt. The crisis will affect social benefits for workers and retirees, including 20,000 on city pensions.

The fall of Detroit, also famous for the emergence of the Motown sound in pop music, underscores the rise of China's cities and auto industry. The symbolism will not go unnoticed amid predictions that this is the century of Asia's ascendancy.

What California's Silicon Valley is to innovation now, Detroit and neighbouring automotive cities were a century ago. It is where GM developed an auto-industry marketing and management culture still in evidence in China today. Rather than a reflection of the decline of US enterprise, Shanghai's rise should be seen as an example of global integration of enterprise and innovation. Indeed, the US auto industry continues to grow, thanks to China. Hopefully, Detroit will emerge from bankruptcy as a different kind of model that a rapidly urbanising China might find useful one day - a case study in urban decay and renewal and the need for diversification.