In the long-hyped competition to be recognised as China's financial centre, many say Shanghai may soon eclipse Hong Kong. Certainly, common consensus holds that it has long left Beijing sitting in its own construction dust. The municipality of Shanghai is preparing to invest 200 billion yuan (HK$188 billion) in the World Exposition to be held there in 2010, two years after Beijing hosts the Olympics.
Shanghai's office and hotel towers are ritzy, the entertainment area, Xintiandi, looks like a Chinese version of London's Covent Garden, and Shanghai girls dress with an almost French sophistication. The city has certainly done a better job of controlling Sars and traffic flows than Beijing. No wonder that this year, all the big foreign conference organisers shifted to Shanghai.
In 2001, Shanghai's financial sector was recognised as one of the city's six pillar industries, growing at a rate of 2.1 per cent that year, compared to 10.3 per cent gross domestic product (GDP) growth. From 1998, however, Shanghai's recorded financial crimes increased by 4.8 per cent per annum, just below its separate recorded rate of economic crimes (contract fraud).
Yes, Forbes has given Shanghai its due credit, listing mostly Shanghai and neighbouring Jiangzhe region private entrepreneurs among China's leading tycoons. Three of Forbes' favourite Shanghai rich, Zhou Zhengyi, Qian Yongwei and Xu Peixin, are under investigation in connection with irregular bank loans for shady property transactions.
Property is revealing. From 1995 to 2001, total profits of all Shanghai's several thousand property development companies reached 27.2 billion yuan. Their publicly stated return on investment averaged 1.85 per cent, meaning they would have all done better leaving their money in the bank. But, in fact, Shanghai property boomed during this period. Clearly, property fortunes were made on shadow, not declared, income, usually from illegal land transfers, removals or construction-cost kickbacks. How else could Forbes' Shanghai tycoons make fortunes based on a 1.85 per cent return?
Shanghai's financial irregularity, however, penetrates deeper beneath the surface than land. The Shanghai Securities Exchange is an insiders' trading floor. False information on listed companies is frequently created, cheating an unwary public out of billions of yuan in transactions, hyping or shrinking share value. Investigators have difficulty collecting evidence against insider trading, as systems for monitoring are either incomplete or non-existent.