A Run For The Money

Shanghai has made the most of its location at the edge of the country's most prosperous provinces, Guangdong and Fujian, as well as its role in its own province, Jiangsu. It also has a growing pool of inexpensive skilled workers--one of the reasons Microsoft chose to set up its Asian Regional Engineering Center there three years ago. William Overholt, head of strategy and economics at Nomura International (HK) Ltd., calls Shanghai the "most successful reforming city today."

"By 2010, Shanghai's GDP will surpass that of Hong Kong," says Yao Xitang, president of a prestigious research institute in Shanghai. Dong Tao predicts that six years from now, Shanghai is likely to have the biggest stock market in Asia outside Japan.

That won't be enough to bring Shanghai up to Hong Kong's speed though. Before Shanghai can become a world-class financial center, it will need a fully convertible currency, and there's still no indication when China intends to make its renminbi a truly international instrument. Mainland China lacks a reliable legal system and widespread use of the English language, both mainstays of international commerce. Hence many multinationals are hedging their bets. China operations may be moving to Shanghai, but companies like Coca-Cola and Philips have kept their formal Asia-Pacific headquarters in Hong Kong. That too could change, however. Hong Kong, after all, was once no more than a piece of barren rock with no economic value whatsoever. And people in Shanghai are well aware that hard work and entrepreneurship can produce miracles.