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SCMP Reporter

AS Shanghai rebuilds its role as China's financial powerhouse, it is counting on foreign money to help put its physical act together.

   City government leaders are aware that unless colossal investments are made in roads, ports, airports, telecommunications and power stations, their goal of turning the city into an economic hub will be stymied by an overburdened infrastructure.

   'We aim to clear all our 'debts' in infrastructure facilities by the year 2000,' vice-mayor Xia Keqiang said.

  Among the massive projects to be built or upgraded are an orbital road circling the city, an urban light rail system, a new international airport at Pudong, a second subway line linking the city centre to Pudong, the Waigaoqiao deep-water port, Waigaoqiao phase two power plant and an information superhighway.

  'If they complete most of these big projects by 2000, they would give a big boost to Shanghai's re-emergence as a financial and economic centre,' a foreign banker said.

   Analysts said these projects would require investments in hundreds of billions of yuan, which Shanghai could not fund entirely out of its own treasury.

   'The city is running short of funds,' Hua Jianmin, another vice-mayor, admitted recently at a meeting of international business leaders.

   In the three years to 1994, Shanghai had invested 48 billion yuan (about HK$44.54 billion) in projects such as the Inner Ring Road which joins the old part of Shanghai to Pudong, and the Yangpu and Nangpu bridges linking the city to the east of the Huangpu River.

   These investments have eased the congestion on the roads, but are far from enough to support the growing demands of a rapidly expanding economy and rising foreign investment.

   Playing catch-up with prosperous Guangdong, the city has pushed economic growth to 14.4 per cent in the three years to 1994, with national growth about two points lower.

   The economy is likely to have grown by 14 per cent again in 1995, against the official target of 12 per cent and national growth rate of 10 per cent.

   Within a year of opening its doors to foreign investment, after Beijing gave the long-awaited green light in 1992, it became abundantly clear that Shanghai had inherited an infrastructure totally ill-equipped to cope with the sudden explosion in economic and financial activities.

   The unfettered explosion created a city almost immobilised by traffic congestion, electricity blackouts and an incredibly long wait of six to 12 months for telephone lines.

   Cyclists and drivers constantly battled one another for right of passage in run-down, narrow roads, creating jams which slowed down business efficiency and wore down investors' patience.

   'The jams were so bad and the traffic so chaotic that you could only arrange two business appointments in one day. Doing business in Shanghai was really a big hassle,' a business consultant said.

   As the strains on the roads became obvious, moves were taken to build the main traffic arteries such as the Inner Ring Road, the North-South Elevated Highway and the Yangpu and Nangpu Bridges.

   The biggest beneficiaries of these investments were investors travelling to and from Pudong, which used to be accessible only through two perpetually congested tunnels and crowded ferries.

   'Whereas you had to spend at least an hour and a half to go to Pudong using the traditional routes, now you can use the Ring Road, which takes you about half an hour,' the business consultant said.

   That had helped to trigger foreign investors' interest in Pudong, a former piece of farmland now being turned into a modern industrial and financial metropolis.

   The city's first subway opened last year. A second metro line to Pudong will be built from this year, linking it to the proposed new international airport, which will have its first runway by 1999.

   Mr Xia said the idea was to get most residents to rely increasingly on public transport instead of bicycles, which clogged up the streets.

   The first phase of the second metro line would cost at least 10 billion yuan and the international airport, with its first runway, another 10 billion yuan.

   The existing Hongqiao International Airport is also looking for funding to expand capacity to keep pace with rising passenger and cargo traffic.

   The Shanghai port - handling a third of the nation's cargo - also needs expansion.

   Add the investments needed for the deep-water port in Pudong, the information highway, the Waigaoqiao power plant and the Outer Ring Road, and Shanghai is in dire need of foreign funding.

   Mr Hua said the government was exploring new ways to attract overseas funds to develop the projects crucial to the city's rapid growth.

   The Foreign Investment Commission, which approves foreign investment projects, had drawn up a six-point guide to help channel foreign capital into infrastructure investment.

   It is trying out the build-operate-transfer system for some power, water and tunnel and wharf projects, where foreign investors would finance, build and run them for a number of years before transferring them to the local authorities.

   Preferential policies would also be introduced to woo foreign investors to these capital-intensive investments, whose pay-back period tended to be above five years.

   Foreign bankers said syndicated loans might become popular as a financing option if the local government was prepared to guarantee these loans.

       The other problem is the local government prefers to retain controlling interests in most projects, instead of letting foreign investors run them.

   'The government is in a dilemma. It needs money but won't let go of the control in these big projects,' Chalit Tayjasanant, vice-president of Bangkok Bank's Shanghai branch, said.

   Given the intense competition for foreign funds among the provinces, Shanghai would find it hard to get funding on its terms, analysts said.

   Shanghai wants the money, foreign investors want the business opportunities. A compromise will have to be worked out if China's most promising city does not want the shortage of funds to stand in the way of its ambition. Tomorrow: Indonesia 



Lack of funds hampers city's bid for glory