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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.

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yuxx88
I don't disagree that the US auto industry once came close to collapse, or that China today is on the rise. But for media outlets to describe Detroit's city level problems as a proxy for overall US decline vs China only adds fuel to current US-China unease. Detroit as a city was horribly mismanaged, and today's bankruptcy has little to do with US innovation or competitiveness. Similarly, it would be a mistake for US media to write on the numerous mismanaged Chinese cities and provinces as a sign of overall China weakness.
VicSexton
aplucky1 - I recommend the Michael Moor documentary "Roger & Me". Helps to explain the cause of the white flight (*spoiler alert* - it's not because they were afraid of black people).
aplucky1
stop connecting the car industry and the collapse of detroit, it is just a minor factor
numerous cities in america do not have giant industrial complexes and are thriving
it has everything to do with "white flight" , now you are left with nothing but losers on welfare, robbing each other
VicSexton
At least Detroit had the redeeming feature of Motown. China just has the factories. And I'd echo what johndoe says - is China taking note of how Detroit has ended up as it has? Other tough lessons learned by the West (slave/child labour, pollution etc.) have been roundly ignored with the
"they did it too" excuse so not much hope from me.
johndoe
This article completely misses the point of the causes of bankruptcy. The auto companies in the US are practically socialized and supported by governments. This is called fascism, the merger of state and corporate power. The auto firms, along with their union arms, are political interest groups. Shanghai has learned nothing as it has an even higher degree of state influence in not only the auto sector but pretty much every other sector. Shanghai will learn an expensive lesson when the credit expansion ends and reveals the bloat of malinvestments supported by a continuous inflow of new credit in China. There also seems to be a subliminal message about immigration policy to be learned in this story.

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