A CONVERSATION WITH ATTILA KARAOSMANOGLU, VICE PRESIDENT OF THE WORLD BANK
OCTOBER 31, 1990
ZRJ: Last July, when former mayor Wang Daohan and I were visiting the United States, we called on the headquarters of the World Bank, where we were warmly received. Today we welcome you to Shanghai. You’ve already listened to briefings by those concerned and you’ve even gone to Pudong to take a look. I hope you’ll tell us what thoughts you have about Shanghai.
AK: My visit to China this time is very brief. Besides Beijing and Shanghai, I’ll also be going to Hangzhou to attend a symposium on China’s systemic reforms, because this is a subject I’m very interested in. I feel that Shanghai’s position in China’s economy is a pivotal one, and I’m therefore particularly interested in Shanghai’s experiments with reforms of the economic system. I believe that reforms in Shanghai will affect reforms in other parts of China, and you will then find a path for reforming China’s economic system.
Since coming to Shanghai, I’ve listened to briefings by leaders of the departments concerned and learned about the progress of and future plans for reforms in Shanghai. I feel you’ve been very successful, and you are also very modest. When I asked whether Shanghai’s reforms are advanced compared with those in other parts of China, the answer was that Shanghai is behind others in every area except financial reforms.
ZRJ: Even in finance, Shanghai’s reforms lag behind those of Guangdong and Fujian.
AK: Overall, this visit has made a deep impression on me. After I go back, I will report to the World Bank leaders on your discussions and implementation of reforms.
As for the development of Pudong, I think this is an extremely ambitious plan. Take the scale of its infrastructure construction—it’s not only a big project for China, it’s a big project for the west coast of the Pacific, and Pudong’s development will drive Shanghai’s and even China’s further development and use of resources. If the World Bank were to be invited to participate cooperatively in such a large project, we would have to consider the following issues regarding participation and investment.
—First, planning at the macro level. Is the development of Pudong a component of Shanghai’s overall development plan, or is it an independent development project? Judging from the symposium on macroeconomics that the World Bank is planning to hold in Shanghai next spring, it would seem that the development plan for Pudong is part of the overall plan for Shanghai.
—Second, environmental issues. The development of Pudong will have a great impact on its surroundings, particularly because Shanghai is densely populated and its industries are highly concentrated—the impact of future development on the environment is very important.
—Third, fiscal issues. The development of Pudong will require large investments. You’re already paying a great deal of attention to this and have drawn up a reasonable fiscal plan that roughly estimates the cost of development.
As far as the World Bank is concerned, we’ve only been invited to participate in many meetings on developing Pudong, but so far we haven’t directly participated in in-depth studies. I look forward to next year’s symposium on macroeconomics becoming the start of our participation in Pudong’s development.
ZRJ: Sir, thank you for raising these questions, which merit much thought. Shanghai’s development program was devised entirely according to the demands for reform laid out in the central government’s Eighth Five-Year Plan. Actually, Shanghai’s reforms are behind those in other provinces and municipalities—we are not at the forefront of the nation in this regard. Guangdong and Fujian are doing better than we are in price reform. Every year, Shanghai gives out several billion renminbi in fiscal subsidies. We’ve therefore decided to conduct price reforms for non-staple foods next year. Like Guangdong, we’ll gradually decontrol some prices and gradually reduce subsidies. But I hear Guangdong will go one step further and decontrol almost all food prices, so they’re ahead of us again.
In financial reforms, Shenzhen now has over 10 foreign banks, and Fujian also has foreign banks. While Shanghai says we’ll allow the establishment of foreign banks, in fact this hasn’t started yet. Not long ago we approved a Sino-foreign joint equity finance company.1 The original 4 foreign banks were limited to the settlements business; they did no lending. The present volume of securities trading in Shanghai is the largest in the nation. We’ll establish the first joint securities exchange in December, though by then it might no longer be the first.
We are also conducting reforms of our housing system, the goal of which is to gradually commoditize housing. Many provinces are already ahead of Shanghai in this reform, except they’re only engaged in small-scale reforms. In such large-scale housing reforms, Shanghai will lead the nation. The program for this reform is currently being discussed by the people—it hasn’t been implemented yet. In short, Shanghai must speed up the pace of its reforms. Without reform, we will be unable to advance. The most important task for Shanghai is to continue carrying out the policy of reform and opening up. We hope the pace of reform can pick up a little.
As for the development of Pudong, we’ve always regarded that as part of Shanghai’s development. The most important work at present is infrastructure construction, and these projects are mainly in Puxi, not Pudong. For example, the Huangpu River Bridge2 currently being built and another that we will start building next year, as well as a high-speed elevated ring road that will connect these two bridges—these are all primarily intended to ease traffic flow in Puxi, disperse the overcrowded population in Puxi to Pudong, and also enable some Puxi industries to move to Pudong after technical upgrading. Our goal is to build Pudong up into a first-rate international city, while at the same time renewing Puxi by dispersing its population and industries. That’s why construction investments over the next few years will mainly be in Puxi.
Particularly before its infrastructure is complete, Pudong will not be able to absorb a large volume of investments. During the next five years, it will be developed primarily in three zones, each measuring 2 to 3 square kilometers: the free trade zone on the edge of the newly built port in Pudong, the financial and commercial zone across from the Bund, and an industrial processing zone next to the high-speed ring road. This, roughly speaking, is the relationship between Pudong’s development and Shanghai’s. I feel that no matter how Pudong develops in the future, the city center will still be in Puxi. Pudong may be beautifully built and have high-tech industries and thriving commerce, but the most prosperous commercial center will still be in the area around the Bund.
The biggest issue is funding for construction. The central government has now given Shanghai a sum of startup money, which enables us to seize the opportunity to start infrastructure construction on a large scale along with some traffic projects. But to complete these projects quickly, we will still be in urgent need of large foreign investments. So far, the funding problem has been solved for some projects but not for others. For example, with the help of German government loans, the Metro project is proceeding very smoothly; the combined sewer wastewater treatment project, which is supported by a World Bank loan, is making rapid progress; with loans promised by the Asian Development Bank, construction of the Huangpu River Bridge has also been very rapid—work on it started last year and will be finished next year. Recently, after visiting the site of the Huangpu River Bridge, a delegation of American engineering experts exclaimed, “This sort of construction speed would be rare anywhere in the world.”
Each time a group of Asian Development Bank officials or specialists visit Shanghai, they say that the loan for the bridge will be approved soon, but so far it hasn’t been approved and we’re building with commercial loans. Also, construction of the second bridge across the Huangpu River, which is scheduled to start next year, and especially the high-speed elevated ring road that will connect the two bridges, will require large investments. Both projects together will require approximately US$1 billion, and this funding isn’t in place yet. Part of the ring road is being built in cooperation with the World Bank, but the project loans haven’t been approved yet. I must say frankly that regardless of whether or not you approve them, we will start construction next year. Shanghai’s cooperation with the World Bank has always been very good, and we hope that projects that have already been evaluated can be approved and implemented more quickly.
When I visited the World Bank while in the United States, Vice President [Moeen] Qureshi told me that in the future, they would approve one project each month. I hope that “one project approval a month” can soon become a reality. Your president, [Barber] Conable, also said that Shanghai’s traffic project should be the number one priority among World Bank loans to China. I feel that the high-speed elevated ring road entirely meets the World Bank’s investment requirement of “meeting fundamental human needs.” Resolution of the traffic problem would also help improve Shanghai’s investment environment and attract more foreign businessmen to invest in Shanghai.
AK: I too hope that the views of President Conable and Vice President Qureshi can be realized. The World Bank’s Board of Executive Directors has already discussed a batch of Chinese loan projects, and the projects to assist China’s Spark Program also include one on Shanghai’s Chongming Island, which will soon be discussed by the board. I hope that they will include Shanghai’s projects when they discuss the next batch of industrial projects.
I’m not satisfied with approving one project a month—I hope it can be faster than that. When the World Bank said “meeting fundamental human needs,” this was not a principle for long-term investments. When the board reviews projects, particularly those that use international development loans, it often has to consider the overall allocation of resources in a country or territory, and whether a significant portion of a loan will be used for poverty alleviation and human resource development. At the same time, it also has to consider the impact a project will have on the environment and on the progress of local reforms, including adjustments to the industrial structure and to organizational structures. I therefore hope that the Shanghai side will cooperate by paying attention to issues of poverty alleviation, reforms, institutional restructuring, and environmental protection when it begins to select projects.
The European Economic Community has now announced that it is lifting its economic sanctions on China, and I anticipate that the attitude of the Asian Development Bank will also change. We hope to provide more loans to China, and will not add many restrictions to these. But Shanghai is so big that the World Bank cannot completely meet all your needs, because there are limits to both its total loans and to the ratio of soft and hard loans. These factors constrain how much in World Bank loans Shanghai can use, and the latter can increase only when [our] total capital increases. I hope that we can exchange views on specific projects the next time we meet.
ZRJ: I appreciate your saying that loans should not only be for meeting fundamental human needs, and that we should surpass the rate of one project a month. I hope we can achieve this goal as soon as possible, and I thank you for your efforts in this regard. I feel that solving Shanghai’s traffic problem is of the utmost importance to Shanghai’s development. Shanghai has already studied its master plan for the city’s development many times. Next year, with the support of the U.N. Development Program, we will be holding a symposium in Shanghai on traffic in international cities to discuss this issue. The transportation projects that I just mentioned—the bridges and the ring road—are very specific. I hope the World Bank will help with our construction and support us through investment. The most important project right now is the high-speed elevated ring road.
As for reforms, we will definitely continue with our current program and will even speed up its pace. Our reforms include industrial and organizational restructuring. China cannot do as some countries do and have its reforms achieve certain goals within several hundred days, nor is it preparing to do so. Our method is to let the people discuss the reform program—such as the housing restructuring that we are now implementing. Because reforms involve changing traditional concepts, they cannot succeed without the support of the people. The next time you come to Shanghai, you will surely see the results of our reform and opening up, and see the achievements of Shanghai’s infrastructure construction.
1. This refers to the Shanghai International Finance Co. Ltd., which was formed with joint equity investments by the Shanghai branch of the Bank of China, the Shanghai branch of the Bank of Communications, the Sanwa Bank of Japan, and the Bank of East Asia of Hong Kong.
2. The Huangpu River Bridge refers to the present Nanpu Bridge. This was the first bridge in Shanghai to span the Huangpu River. It has a total length of 8,689 meters and is a twin-tower, dual-cable, diagonal cable-stayed structure. The main section of the bridge is 46 meters high. Total investment in this project was RMB 820 million; construction began in December 1988 and it was opened to traffic in December 1991.