A CONVERSATION WITH MOEEN QURESHI, SENIOR VICE PRESIDENT OF THE WORLD BANK, AND DELEGATION1
APRIL 8, 1990
ZRJ: The World Bank has cooperated very well with Shanghai all along, and we place great hope in the prospects for our future cooperation. Shanghai has already prepared cooperative projects that would utilize several hundred million dollars from the World Bank. Some of these have already been evaluated while others are currently being evaluated. Now everything is ready and we are only waiting for one thing. Sir, I wonder what good news you’ve brought to Shanghai this time?
Qureshi: This China trip of mine is a very important one, and I was very pleased to meet with Chinese leaders in Beijing; my coming to Shanghai is also part of my China itinerary. Shanghai has played an extremely important role in China’s reforms and opening up of the past decade, and I look forward to further cooperation between Shanghai and the World Bank. Before this, my colleagues already discussed with Shanghai several major projects that would directly use World Bank loans, and we hope these projects will be implemented as soon as possible. I also know that Shanghai has several very important industrial technology upgrading projects that are awaiting discussion and approval by our board. We are also preparing to cosponsor a symposium with Shanghai to specifically discuss the topic of Shanghai’s development strategy, including how it will bring together people, materials, and various resources for construction; we will also discuss what role the World Bank can play in this process and how the bank should play it.
Shanghai is my last stop on this trip and I hope to learn more from it. I’d therefore like to ask you three questions: First, which direction will Shanghai’s enterprises take as they reform? Second, your economy is currently stable, but what direction will your financial and foreign trade sectors take to meet the needs of a market economy? Third, this March, you convened the International Business Leaders Advisory Council to the Mayor of Shanghai (IBLAC). What was the attitude of these advisers regarding Shanghai’s development? What next steps do you plan to take? And how will you attract foreign investment to Shanghai?
ZRJ: I’m more than happy to answer your questions. When Premier Li Peng met with you, he stressed that China is stable politically and economically, and that the various reform policies of the past 10 years will not change. I’ll now answer your questions by describing the situation in Shanghai and linking it to those two aspects that Premier Li discussed.
Your stay in Shanghai is very brief, but you can see that it is politically, economically, and socially stable. Most important is that the fear of inflation among the people has been dispelled, and their confidence in the Party and government is stronger than before. Now we’re not worried about shortages in the markets; we’re worried about weakness in the markets. Shanghai’s markets have an abundance of goods for people to choose from as they please, and the prices of these goods are stable. In particular, the supply of non-staples in Shanghai is probably the best among major Chinese cities. All this shows that the rectification program we have been implementing over the past two years was correct, and it is already showing results. Of course some problems remain, such as negative growth in production, but the degree of negative growth isn’t very large: production in the first quarter of this year was about 1% lower than in the same period last year. The main reason for this problem is that production grew too quickly in the past, while there were major deficiencies in the industrial structure.
Over the past few years, we developed a large number of industries that produced durable goods, so after the money supply was tightened and market demand fell due to rectification, these industries ran into difficulties. Some of them had to halt or semi-halt production, which affected the industrial growth rate. But only about 2% of the total employees at Shanghai’s enterprises are affected by these stoppages or half-stoppages, and Shanghai’s stability hasn’t been affected.
Our solution is to adjust our industrial structure and product mix. For instance, Shanghai has the capacity to make 1 million color TVs a year, but this year we can only make 500,000. We therefore have to change product lines quickly and develop new electronics industries, and also organize production in line with market demands. Of course such adjustments to our industrial structure and product mix are inseparable from technical upgrading and product development—these will require both time and money. Since last year, such adjustments have already been under way in Shanghai for a year, and they will continue for another year. It will be very hard for them to yield results in less than two years, or even a little longer. That’s why I don’t think there will be very great growth in Shanghai’s economy this year—I’d be happy if there was a little growth. If the adjustments are handled well, there may be fairly significant growth in the economy next year. But during the entire period of adjustment, the economy will continue developing at a slow but steady rate—this is sounder than the blind and overheated growth of the past.
The question now is how should we start up the markets? Our present conditions for production are far better than before—power supplies are ample, coal inventories are much larger than before, and raw materials are also no problem. The approach I’m thinking of is to adjust the industrial structure to stimulate production, and to engage in large-scale urban infrastructure construction to stimulate demand. The latter would include building a ring road and housing to meet the needs of residents, so as to start up the markets.
I also want to share with you some good news about Shanghai: beginning this year, the Central Committee and the State Council will be giving special support to Shanghai’s further opening up and to accelerate the development of Pudong. They recently asked [Vice Premier] Yao Yilin to lead a delegation to Shanghai to inspect our work and to conduct special studies on how Shanghai should further open up, improve its investment environment, and attract more foreign investment to redevelop the old urban areas and develop Pudong. The delegation also had extensive discussions with the relevant agencies of our city government on certain important issues and policy details. I’m disclosing this to you even though the central government hasn’t publicly announced these policies yet.
The area around the Bund used to be “Bank Street,” and old Shanghai started developing from that location. Before 1949, the urban area wasn’t very large, and many parts of the present old urban area were gradually built up after 1949. The city center now is mainly in Puxi and centered around the Bund. Puxi forms half a circle—the other half lies in Pudong, which has yet to be developed. The old urban area on the Puxi side has an area of 300-odd square kilometers and a population of almost 10 million—it’s already very crowded. On the Pudong side, the new area being planned has an area of over 350 square kilometers, but its current population is only a little over 1 million, which is why it has a lot of room for growth.
We’ve now decided to designate an economic and technical development zone in the 350 square kilometers east of the Huangpu River, north of the Chuanyang River and southwest of the mouth of the Yangtze River. Investors within this zone can enjoy the most favorable investment conditions currently available in China. Of course conditions in Shanghai differ from those in Shenzhen, Zhuhai, and Xiamen, but the special policies in these places can basically all be implemented during the development of Pudong. These include allowing foreign invested enterprises to negotiate suitable extensions of land lease and cooperation periods.
Burki: The development zone in Pudong isn’t unoccupied right now—it already has over a million people. How do you plan to resettle these people when you develop Pudong?
ZRJ: Right now, these million-plus people are basically concentrated in the stretch of Pudong closest to the urban area, and their living conditions are not very good. We plan to build swathes of housing as we develop Pudong, and resettle the original residents there.
Of course the development of Pudong is a project that will go on into the next century, and it needs to be developed step by step. We not only have to announce even bolder policy measures for opening up, we also have to build a great deal of infrastructure. We already have a very extensive plan for basic construction in Pudong. We will first build a new port at Waigaoqiao. Work will start next year on a quay with four 10,000-ton berths; we will then excavate a succession of berths, for a total of over forty 10,000-ton berths, which is equivalent to the current number of berths in Shanghai. All our present docks are along the Huangpu River; after the new port is completed, many transport ships will no longer have to enter that river. The Jiangnan Shipyard, which is currently the largest one in China, is also located along the Huangpu, but in the future it will gradually be moved to Waigaoqiao. To develop export processing industries and transshipment trade, we’ll also build a 1.2 million-kilowatt power plant at Waigaoqiao, as well as a processing zone and a bonded free trade zone. In other words, the port at Waigaoqiao and its surroundings will become a key development area of the Pudong project.
Qureshi: The idea of building a new port in the Pudong development zone is a very good one. I’d like to ask this question: how is the development of Pudong related to the growth of the old urban area?
ZRJ: In conjunction with our industrial restructuring and technical upgrading, we are planning to move some of the enterprises from the old urban area to Pudong. This will alleviate the excessive population density and the stress on public facilities in the old urban area. Lujiazui in Pudong is a parklike area just across the river directly facing the old urban area. This will gradually be built up into Shanghai’s new center for finance, trade, information, consulting, and services for foreigners.
In developing Pudong, the first problem that has to be solved is that of cross-river transportation. Right now we rely mainly on ferries, and there are also two tunnels under the river. By the end of next year, the Nanpu Bridge will be open to traffic. Right after that, at the Ningguo Road location where your World Bank experts recommended a river-crossing project, we will start to build another bridge next year. It, too, will be completed in two years and opened to traffic in 1993. At the same time that these two bridges are being built, we will also build a ring road inside the city that will connect Pudong with the old urban area. In light of how crowded the old urban area is, too many people would have to be relocated if we were to widen roads. We’re therefore preparing to use airspace to build an elevated four-lane highway in the old urban area. These infrastructure projects will require large investments, and some of them, like the bridge and Metro, are already using long-term low-interest loans from the Asian Development Bank, the IMF, and foreign governments. We are doing our best to obtain preferential loans from the World Bank, the Asian Development Bank, the IMF, and various governments; to those, we will add our own efforts to do a good job with Pudong’s infrastructure. We will use different means of attracting foreign capital: we will invite foreign businessmen to invest after infrastructure and standard factory buildings are completed; we’re also preparing to speed up the pace of development by using land leasing to allow foreigners to develop swathes of land or to bring capital and projects to build in Pudong.
Qureshi: Mr. Mayor, the impression I get from your description is that your projects are extremely large. You should therefore also make somewhat bigger moves to attract investments. For example, private foreign investments can be used not just for hotels and enterprises, they can also be used for infrastructure construction. These private loans don’t require government guarantees and can be repaid by charging fees after the projects are completed.
ZRJ: Of course we welcome foreign investors to participate in developing Pudong, but the initial stage will mainly consist of infrastructure construction. I’m worried that foreign investors might not be willing to invest in infrastructure, as these projects will not be profitable in the short term.
Lim: The World Bank already has some experience in attracting private investments: we added some World Bank loans to private investments in roads, bridges, and power stations. For example, a power station in Pakistan used a World Bank loan of US$1.5 billion, which included some private investment.
Qureshi: This is a new fundraising technique developed by the World Bank. The private investment attracted is used together with World Bank loans. One of the topics to be discussed at the symposium we are preparing to hold in Shanghai is how to attract private investment for infrastructure construction. After I return, I can send you some materials on this so that you can familiarize yourself with it.
At a news conference held by the Shanghai municipal government on the development of Pudong, May 3, 1990. Far right, Vice Mayor Ni Tianzeng; to Zhu’s right, Huang Ju, vice mayor and deputy secretary of the Municipal Party Committee; Xia Keqiang, deputy secretary-general of the municipal government; and Sha Lin, deputy chair of the Municipal Science and Technology Commission.
ZRJ: I’m very interested in your suggestion and in this subject you’ll be discussing. We can use all channels and all common international practices to raise money for Pudong’s development. At the IBLAC meeting this March, it was also suggested that we invite bankers from around the world to discuss the development of financial services in Shanghai. The central government has already agreed to allow foreign banks to be established in Shanghai to enable more foreign investment to be attracted to Pudong and to all of Shanghai.
Qureshi: To the best of my knowledge, several foreign banks have already opened offices in Shanghai, but they still can’t conduct standard banking businesses.
ZRJ: At present, 41 foreign-invested banks have offices in Shanghai, including banks owned by overseas Chinese and foreign securities companies. In addition, there are already branches of four foreign banks: HSBC, Standard Chartered Bank, Bank of East Asia, and Oversea-Chinese Banking Corporation. Right now, these four banks only process settlements and don’t engage in lending, because the present income tax rate on foreign banks is quite high.
Qureshi: When will new foreign banks be allowed?
ZRJ: Many foreign banks are asking to set up branches in Shanghai, and we can only systematically allow them to do so one at a time. During the preparatory phase of Pudong’s development, the emphasis will be on strengthening infrastructure construction. In this area, the central government is giving Shanghai great support, and together with Shanghai’s own savings, we almost have enough for startup funding for the first three years. Of course we also hope to gain the World Bank’s support, and we welcome you to participate in Pudong’s development. We believe that through these measures, Shanghai’s economy will definitely achieve steady growth in the next few years, and there will be much progress in attracting foreign investment.
Sir, you wondered how the IBLAC advisers felt about Shanghai’s development. I can tell you that they’re very confident about Shanghai’s future and are very interested in investing in Shanghai. Of course there are also some concerns, namely, the position of the United States toward China. The Japanese, in particular, are waiting to see the American position.
Lim: I think that on this matter, American enterprises don’t even have as many concerns as Japanese enterprises.
ZRJ: I sincerely hope that Sino-American relations will improve very soon. This is not just for China’s interests; even more so it involves American interests. China isn’t afraid of economic “sanctions”; at most it will just develop a bit more slowly. Even without help from the United States, China absolutely won’t fall apart, and its economy will continue to grow steadily as before.
I hope you will do more to promote cooperation between the World Bank and China, particularly Shanghai.
1. On April 8, 1990, Zhu Rongji met with Moeen Qureshi, senior vice president of the World Bank; Shahid Javed Burki, World Bank country director for China; and Edwin Lim, the World Bank’s chief representative in China.