The view from the Bund in Shanghai must be one of the most exciting in the world at the moment. On one side of the river are the beautifully restored old buildings from the 19th century – solid Victorian edifices. They light up superbly at night. On the other side the 21st century skyscrapers familiar to all who watched Skyfall.

 

What makes them exciting is not just the visual beauty – though that is impressive – but the way in which they represent one of the most economically dynamic cities on earth. Shanghai is pushing its way towards the front of the queue of world cities. Whereas Beijing slows down at night, Shanghai if anything picks up. It is a work hard play hard city, as London was in the days of the financial boom.

 

Shanghai is also leading China’s transformation from a labour surplus economy to a labour scare economy. China’s labour force is now getting smaller and wages have risen from 5% of Western levels to about 25%. They will rise further and China will increasingly specialise in higher tech, high productivity sectors. Nike and Adidas have moved their factories to Myanmar and Vietnam.

 

The new Chinese leadership has made a good start. The anti corruption drive is real, at least if judged by the lean pickings for the businesses that specialise in the types of products that used to be given as ‘gifts’. It is considered significant that the new anti corruption boss has no children – the implication being that he has no one he needs to line his pockets for.

 

But there is likely to be tension with the West. Whereas in the West, brought up on competitive sports where competition is, within limits, seen as a healthy force, in the East it is seen much more as a zero sum game. And so the US tilt to the Pacific and its strengthening of its military presence in the region is seen as threatening by China. This is one of the reasons why President Xi has made his first foreign trips to Moscow and to Africa for the BRICs summit. He is building ties with forces that will be seen as anti Western. The West will need steady diplomacy to match the challenge. Obama here in China is seen as a weak President and one whose weaknesses can be exploited.

 

Douglas McWilliams, March 2013

 

To read the ICAEW’s Greater China Economic Insight report, please visit their micro-site.