Chapter 2
Development of Shanghai's Advanced Manufacturing Industry

Status Quo and Features

Shanghai's manufacturing industry has long played a supporting and driving role in the city's economy. Although there is a decrease in the ranking of its total output in China, its key industries enjoy a number of advantages in scale, industrial structure, labor productivity, comprehensive matching capacity, talent pool, and resource allocation. Firstly, its well-developed iron and steel, automobile, and petrochemical industries are obviously more competitive in China. Secondly, Shanghai enjoys a full-range industrial chain in manufacturing, which is unique, even amongst the world's major industrial cities. Thirdly, industry in Shanghai has a balanced structure, with an appropriate heavy-to-light industry ratio and suitable shares between primary, secondary and tertiary industries. Fourthly, Shanghai ranks top in China, in terms of labor productivity and profit. Fifthly, the overall level of service in Shanghai's manufacturing industry ranks amongst the best in China.

1.1 Pillar Industries

In keeping with the economic climate, the Shanghai municipal government selected its pillar industries for the Tenth Five-Year Plan period as: electronic information equipment manufacturing, automobiles, petrochemical and fine chemical, top-quality steel, power station equipment and large packaged equipment, and modern biomedicine.

Automobile manufacturing industry

Since the 1990s, automobile manufacturing has spearheaded Shanghai's industrial development. A stupendous boom in the domestic car market in 2002 further saw investment in Shanghai's automobile industry grow rapidly (see Table 2.1). After more than ten years of development, Shanghai has become the home of Volkswagen, GM, and SMA, as well as of some auto parts manufacturing companies. The automobile product range has also developed, from past dominance by the ordinary Santana, to a more diversified series today, including the Buick Regal, Buick Excelle, Passat, and SMA Marindo.

During the Tenth Five-Year Plan period, Shanghai's annual automobile production increased from 290,000 vehicles in 2001 to 490,000 vehicles in 2005, and the accumulative total for this period amounted to more than 2.32 million vehicles. The boom in the industry lasted from 2001 to 2003, and then underwent a backward slide during 2004–2005.

When viewed from an overall perspective, the development of Shanghai's automobile industry has the following features:

• On the whole, the automobile manufacturing industry shows a downward trend. In 2005, the output value was RMB 102.6 billion, down 8% from 2004. Industrial product sales were RMB 1,000.9 billion, down 14%. The main business income was RMB 116.8 billion, a 6% decrease. Total profit earned was RMB 9.8 billion, a drop of 47%, which was the biggest decrease, among the six industries prioritized for development (see Table 2.2).

In the past two years, the proportion of the automobile manufacturing industry in the city's total industrial output showed a downward trend year by year. In 2005, the industry accounted for only 6.5% of Shanghai's total industrial output, the lowest during the Tenth Five-Year Plan period (see Figure 2.1).

• While there was negative growth in automobile production and sales for two consecutive years, there were obvious signs of recovery. In 2005, neither production nor sales achieved any growth, and Shanghai's automobile industry declined for two years. The production to sales ratio was 98% and the ratio of profit to sales was about 8%. Car sales had a general trend of first going down and then recovering. Monthly production and sales dropped by double digits in the first half of the year, and then improved in the second half (except for November).
• The automobile retail and maintenance industry is clearly on the upbeat. In 2005, Shanghai sold 90,000 vehicles, a close to 2% increase from 2004. Car sales accounted for 80,000 units of this figure, up 0.3%. In 2005, Shanghai's automobile maintenance industry serviced 4.9 million vehicles and tested 250,000, earning an operating income of RMB 5 billion. Apart from the traditional comprehensive maintenance, new developments had emerged such as designated maintenance, auto care and decoration, which were provided by fast service and chain shops.
• Car production currently enjoys an important position in China. Cars are the main product of Shanghai's automobile manufacturing industry. Car production and sales respectively contribute 99.2% and 99.1% of the totals in Shanghai's automobile industry. At present, Shanghai-made cars appear in a product series, with medium cars as the main part, and luxury and common cars as the supplement (see Figure 2.2). In 2005, Shanghai produced 480,000 cars and ranked number one in China, Guangdong produced 400,000 cars, and took second place, followed by other provinces and municipalities. However, Shanghai's share of China's car market showed a year-by-year decreasing trend during the Tenth Five-Year Plan period.
• The export of automobile products is rapidly increasing. In 2005, Shanghai's automobile industry achieved an export delivery value of RMB 9.4 billion, up 34% from 2004. Of this figure, the manufacture of finished vehicles reached RMB 2.8 billion, or up 30%, while the auto parts industry attained RMB 6.5 billion, up 36%.

Top-quality steel industry

During the Tenth Five-Year Plan period, Shanghai's top-quality steel industry held back from the blind expansion seen elsewhere in China. Instead, it concentrated its efforts on improving the product mix. As a result, this industry grew 13% annually during the period, and accounted for 8.5 of the city's total industrial output.

In 2005, the top-quality steel industry ranked number four in Shanghai's six pillar industries in terms of total output, and its total profit accounted for nearly 20% of Shanghai's industrial total. Among the six pillar industries, the top-quality steel industry has climbed from third place in 2001 to first in 2005 in terms of contribution to profit. Its industrial output was RMB 133.98 billion, up 15%, accounting for 8.5% of Shanghai's total industrial output. The main business income was RMB 148.89 billion, up 38.7%, and accounting for 9% of Shanghai's total business income. Production to sales ratio was 98.8%, profit RMB 17.83 billion, up 7%, and accounting for 19%, and tax payment was RMB 7.19 billion, accounting for 11.9%.

Shanghai's steel industry ranks number five in China in terms of output value and main business income, but it has the strongest profitability, and its total profit ranks first in China. Its profit ratio of main business income is 12%, much higher than the national average of 5%. Its production to sales ratio is also the highest among the five provinces and municipalities (see Table 2.3).

During the Tenth Five-Year Plan period, the top-quality steel industry of Shanghai focused on upgrading the quality of its products, and implemented a top brand strategy. A series of adjustments and revamps were conducted to eliminate outdated production techniques and facilities. A number of high-quality steel production lines were installed by applying state-of-the-art technology. The product mix was improved and optimized. Great progress was made in building R&D bases for new processes, new equipment, and new products. All these factors changed Shanghai into China's most competitive production base for top-quality steel.

Insight 2-1

Baosteel—A Flagship Enterprise of Shanghai's Iron and Steel Industry

Baosteel is the leader of Shanghai's iron and steel industry. It is the largest, most modernized, and most competitive iron and steel complex in China.

The company's first phase construction project began on December 23, 1978, and was completed and went into production on September 15, 1985. Its second phase project went into operation in June 1991, and the third phase project was completed by the end of 2000. On February 3, 2000, the company floated its shares on China's stock market on December 12 of the same year.

Baosteel has been one of the world's top 500 companies for two consecutive years. In the fields of general-purpose steel, stainless steel, and specialty steel, Baosteel has become a major steel production base, covering steel for automobiles, household electric appliances, oil exploitation and piping, novel buildings, as well as electrical and special metal materials. In 2005, it achieved an output of RMB 117.5 billion, accounting for 88% of Shanghai's top-quality steel industry, a main business income of RMB 132 billion, accounting for 89%, and paid taxes amounting to RMB 6.9 billion, accounting for 96%. Its production volume made up more than 95% of the city's total.

With its comprehensive advantages in credibility, talent, innovation, management, and technology, Baosteel was ranked among the top three of the most competitive steel producers globally according to Guide to the World Steel Industry, and was believed by this guide to be the most promising steel enterprise.

Baosteel specializes in producing high-tech and high-value-added steel products. The company has become China's main supplier of steel products for the automobile, household appliance, oil and natural gas exploration, and the pressure vessel and container industries. Meanwhile, its products are exported to over 40 countries and regions, such as Japan, Korea, Europe, and the United States.

The company has adopted an advanced quality control system. Its main products have passed the ISO9001 quality certification, the certification of API and JIS, and the QS9000 certification by GM, Ford, and Chrysler. In addition, its products have also been recognized by ship classification societies in seven countries: China, France, the United States, the United Kingdom, Germany, Norway, and Italy.

The company possesses strong R&D capabilities for developing new technologies, products, processes, and equipment. This will ensure vigorous future development for the company.

Baosteel devotes a great deal of attention to environmental protection in its pursuit of sustainable development. It is the first Chinese steel producer to gain the ISO 14001 environmental certification.

Equipment manufacturing industry

Shanghai's equipment manufacturing industry is composed of seven sectors or 33 sub-sectors. The seven sectors are: metal products, general-purpose equipment, specialized equipment, transportation equipment, electrical equipment, communication equipment, and computers and instruments. Shanghai's equipment manufacturing industry focuses on ten key industries: power generation, power transmission and distribution, track transportation, microelectronics, heavy machinery, CNC machine tools, mechatronics, instrument and control equipment, nuclear power, coal liquefaction, and advanced coal mining facilities.

During the Tenth Five-Year Plan period, there was a nationwide electricity shortage, due to accelerated economic growth. This triggered off a series of power station projects in various parts of the country, which provided opportunities for Shanghai's packaged equipment manufacturing industry. This industry, which includes ship and power station equipment manufacturing, is a leading industry in China, and has enjoyed the most stable development in recent years. Although the rising price of steel, its main raw material, led to a considerable increase in cost, the industry still showed continual growth, and was Shanghai's second largest profit maker. In 2005, Shanghai's packaged equipment manufacturing industry achieved an industrial output of RMB 153.263 billion, up 21.2% over the previous year, representing an increase 2.3 times over that in 2000. Its average annual growth was 26.9% during the Tenth Five-Year Plan period. It gained a main business income of RMB 154.89 billion, up 24.3% from the previous year; it earned a profit of RMB 11.56 billion, up 36.8%; its tax payment reached RMB 4.077 billion, an increase of 8.8%. Within the industry, boiler equipment, lifting and transportation equipment, general-purpose instruments, specialized equipment for electronic and electrical machines, ship manufacturing, and electrical motors, each maintained over 20% in annual growth in their industrial output value.

Within the equipment manufacturing industry, Shanghai prioritized the development of such sectors as power-generating equipment, power transmission and distribution equipment, track transportation equipment, and microelectronic equipment.

In 2005, Shanghai's equipment manufacturing industry experienced stable and rapid production growth. The total production value reached RMB 740.91 billion, an 18% increase over the previous year, sales were RMB 764.4 billion, up almost 14%. Its contribution to the city's total industrial output rose to 47%. Despite a slight decline from the previous year, the industry has a clear leading advantage.

There was a decline in profit. The industry was impacted by the fierce competition and profit slip of the domestic automobile industry as well as a weakening demand in international electronic equipment. The 2005 full year profit was RMB 37.6 billion, down 15% from the previous year. This figure included a sharp decrease for transportation equipment, communication equipment, computer, and other electronics.

However, a high production to sales ratio was maintained. In 2005, Shanghai's equipment manufacturing industry achieved product sales of RMB 726.7 billion. With stable growth in market demand, its production to sales ratio was 98%. At the same time, there was a robust export growth. In 2005, the industry achieved an export volume of RMB 334.4 billion, up by nearly 43% from the previous year. The export delivery value accounted for up to 46% of the industry's sales.

Investments accelerated in the industry. In 2005, Shanghai's equipment manufacturing industry made a total investment of RMB 132.6 billion, up 49% from the previous year. Of this figure, electronic equipment manufacturing (such as communication, computer, etc.), and transportation equipment manufacturing accounted for 46% and 40% respectively, while instruments and office equipment only had a share of 0.4%. Investment was thus fairly centralized, with an unbalanced structure (see Table 2.4)

In 2005, the output of Shanghai's equipment manufacturing industry took third place in China behind that of Guangdong and Jiangsu. However, Shanghai continued to be a technical leader in high-end fields, including packaged power generation equipment, automobiles, ships, medium- and high-grade machine tools, printing presses, and large petrochemical equipment.

In 2005, Shanghai's equipment manufacturing industry had a total of 227 R&D institutions employing nearly 50,000 researchers. The expenditure on technology development was RMB 18.9 billion, almost two times that of 2000. Of this figure, R&D, at the core of science and technology activities, accounted for around RMB 8.6 billion, up by 3.3 times over 2000.

Insight 2-2

Shanghai Electric—China's Largest Equipment Manufacturer

Shanghai Electric Group Co. Ltd. (hereinafter referred to as Shanghai Electric) is the largest equipment manufacturer in China with a history going back to 1880. The group was restructured in March 2004 before floating its shares as H shares on Hong Kong's stock exchange in April 2005.

As the largest corporation engaged in design, manufacturing, and sales of power generation equipment and heavy machinery, Shanghai Electric has a total asset worth more than RMB 70 billion. It has six listed companies and 134 joint ventures. Its products include: packaged power station equipment, packaged power transmission and distribution equipment, industrial automation equipment, CNC machine tools, equipment for information industry, printing and packaging machines, light industry machinery, textile machinery, track transportation equipment, refrigeration and air-conditioning equipment, environmental machinery, general and petrochemical equipment, engineering power machines, heavy mining machines, basic machine parts, modern agricultural machinery, elevators, household appliances, and other products.

The development of Shanghai Electric is a miniature version of China's heavy industry development. By upholding independent innovation, the group has maintained double-digit growth for over 20 years, and its main products have long enjoyed a leading position in China's market. In addition, Shanghai Electric has also established an international presence by building strategic international partnerships and continuously raising its technical standards. With innovations in its systems and facilities, the group has focused on its core businesses, namely, equipment for power generation, transmission and distribution, mechatronics, transportation, environmental facilities, and heavy industry. The group has also become more competitive in packaged equipment supply, project contracting, and modern integrated services.

The group has its own financial company, information center, research center, and 19 technology centers that specialize in developing automation and informatization products for the whole corporation. As the leader of Shanghai's equipment manufacturing industry, Shanghai Electric has scored remarkable achievements in research and development. In 2005, the group invested more than 4% of its sales in R&D. More than 50% of its products that year were covered by its own intellectual property rights, and were dominant in the product mix. Besides these successes, the group has also established its own brands. It has established a central research institute to carry out critical research projects and technical missions.

Over the years, Shanghai Electric has explored new ways to establish joint ventures for mutual benefit with world-famous companies such as Carrier, Siemens, ABB, Schneider, Alstom, Alcatel, Morgan, Mitsubishi, Panasonic, and Toshiba. Such alliances have significantly enhanced the group's competitive edge both at home and abroad.

Electronic information product manufacturing industry

Shanghai's electronic information product manufacturing industry made rapid development during the Tenth Five-Year Plan period, with an average annual growth of 34%. Its contribution to the six prioritized industries reached 40.3%, and its proportion in Shanghai's total industrial output rose from 12.7% in 2000 to 25.5% in 2005. It is the fastest growing industry in Shanghai, and has become the largest contributor to Shanghai's total industrial output.

In 2005, the industry achieved an industrial output of RMB 402.895 billion, accounting for 25.5% of Shanghai's total. Its growth stood at 25.9%, 12 percentage points higher than the overall industrial increase for the city, and its contribution to GDP was almost 9%. It gained a main business income of RMB 410.595 billion, up 21.8%.

To be specific, Shanghai's electronic information product manufacturing industry exhibits the following features in development:

• Development of integrated circuits is at the core, and is the key for the development of an information technology industry cluster. Shanghai has become China's largest and most advanced center for integrated circuit design, manufacturing, and packaging. In 2005, integrated circuit manufacturing achieved a main business income of RMB 25 billion, up by 4 times over that of 2000 (see Table 2.7).
• In 2005, the main business income of the electronic computer manufacturing sector reached RMB 187.8 billion, increasing 13.7 times from the end of the Ninth Five-Year Plan period. A total of 21.76 million microcomputers were made, increasing 51 times from the end of the Ninth Five-Year Plan period. Quanta Group, the world's largest notebook computer maker, invested in Songjiang Export and Processing Zone, and set up its Quanta Shanghai Manufacturing City (QSMC), with Dafeng (Shanghai) Computer Co. Ltd. as its spearhead.
• In 2005, while growth in Shanghai's electronic information product manufacturing was slowing down, the communication equipment manufacturing sector achieved a main business income of RMB 62.2 billion, up 65% over the previous year, contributing to 33% of growth in the electronic information product manufacturing industry, and increasing 1.4 times over 2000. Cell phone production was 19.39 million units, up by 1.9 times of the 2000 volume.

• Information product manufacturing was the first industry in China that was brought in line with international practices. With its advantages in geographical location and talent, Shanghai has attracted large volumes of overseas capital. In 2000, 90% of the main business income of Shanghai's electronic information product manufacturing industry was generated by enterprises with investments from foreign countries and the regions of Hong Kong, Macao, and Taiwan. In 2005, this proportion increased by 3 percentage points. During the Tenth Five-Year Plan period, those enterprises with Hong Kong, Macao, and Taiwan investments increased rapidly, and their contribution to Shanghai's electronic information product manufacturing industry rose from 13% to 25%.

Insight 2-3

SMIC—One of China's Top Makers of Integrated Circuits

Established in 2000, SMIC has its headquarters in Shanghai, China. It has three chip fabs, including one dedicated copper backend line. In May 2003, its Fab 1 was awarded the “Top Fab of the Year, 2003” by Semiconductor International, a leading publication in the semiconductor industry.

SMIC is one of the most advanced IC enterprises and the only enterprise capable of making 12-inch chips in China. It can also provide OEM services for chips of 0.35μm to 90 nm, and more advanced 8-inch and 12-inch IC manufacturing services. Currently, the company has a strong R&D team of more than 800 engineers, and it is continuously stepping up R&D investment to drive its products to the high end of the market.

SMIC's technology capabilities cover logic, mixed signal/RF, high-voltage circuits, system-on-chip, embedded and other memories, LCOS and CIS, among others. CMIC owes its rapid technological development and excellent fab management to a team of highly qualified and experienced engineers from North America, Europe, and Asia as well as a network of leading international technology and manufacturing partners.

More than just a wafer OEM, SMIC provides its customers with a full set of value-added services that range from design, mask making, and IC manufacturing, to testing, while packaging and final testing services are offered through third-party suppliers. With strong internal offerings and collaboration with a global network design service, IP, standard cell library, and EDA providers, SMIC provides its customers with wide-ranging and highly flexible design support.

To better serve its worldwide customers, SMIC has customer service and marketing offices in China, the United States, Europe, and Japan in addition to partners in Korea and Israel.

Petrochemical industry

During the Tenth Five-Year Plan period, the petrochemical and fine chemical manufacturing industry further expanded its production scale and played a significant role in Shanghai's industrial development. It has become Shanghai's second largest industrial sector. The

building of Shanghai Chemical Industrial Zone has attracted investment of global petrochemical giants, such as Bayer, BASF, and BP. At the initial stage in the construction of the zone (2000–2010), the average investment per square kilometer reached US$1.38 billion, three to four times that of other zones around China. The fixed-asset investment in Shanghai's petrochemical and fine chemical industry will be concentrated in the zone upon its completion, which will optimize the investment distribution system and add more prestige to the zone's high-quality projects.

In 2005, the petrochemical and fine chemical manufacturing industry achieved an industrial output of RMB 178.399 billion, up 12.6% over 2004 and 69.5% over 2000, representing an annual average growth of 11.1% during the Tenth Five-Year Plan period. Major business income was RMB 177.905 billion, up 26.8% from the previous year, profit was RMB 5.813 billion, down 42.7%, and tax payment was RMB 6.776 billion, down 5.5%. The newly established chemical zone achieved an industrial output of RMB 14.99 billion, up 38.5 times from the previous year, and contributing 35.1% to the growth of the entire industry.

1.2 Strategic Industries

Strategic industries refer to industries bearing on a country's national security, such as shipbuilding, offshore oil and gas exploration and production facilities, and aviation and aerospace industries.

Aviation and aerospace manufacturing industry

Shanghai's civil aviation industry developed very slowly during the Tenth Five-Year Plan period. Its research and fabrication resources were not fully utilized, and no great breakthroughs were made in major projects. Moreover, the sales volume of aviation industrial products did not improve significantly, and the industry's total sales revenue during the period was a mere RMB 980 million.

However, Shanghai's aerospace industry had won renown for the country and the city with such projects as missile-guided weapon systems, human space flights, Fengyun Meteorological Satellites, military remote sensing satellites, and carrier rockets. In addition, it had made good progress in mini-satellite technology, aeronautical machinery and electronics, and in the development and commercialization of remote sensing and information systems.

In 2005, Shanghai's aviation and aerospace industry developed rapidly. It achieved a gross industrial output of RMB 1.74 billion, up by 31.6% over 2004, a total asset worth RMB 3.03 billion, up 17%, a total profit of RMB 100 million, up 88.9%, and a sales income of RMB 1.64 billion, up 31.8%

Shipbuilding industry

During the Tenth Five-Year Plan period, the industry's output improved from 741,000 deadweight tons in 2000 to 2.356 million deadweight tons by the end of the period, increasing 2.2 times with an average annual growth of 26% (see Figure 2.6). Metal ship building, auxiliary ship equipment manufacturing, and ship repair and breaking became the mainstay of Shanghai's shipbuilding industry and contributed to 99% of its total output (see Figure 2.7).

In 2005, the total industrial output of Shanghai's shipbuilding industry reached RMB 24.16 billion, up about 24% from 2004, with an industrial sales output of RMB 23.95 billion, up 19% from

2004. In 2005, the industry achieved a main business income of RMB 27.14 billion, up 39.3% from 2004, with a total profit of RMB 850 million, increasing 2.2 times that of the previous year.

The industry also witnessed vigorous increase in exports. In 2005, it achieved an export delivery value of RMB 11.15 billion, up 55.8% over 2004. At the end of 2005, the whole industry had a total in-hand purchase order of 8.552 million deadweight tons, up 26% from the previous year. And 85.5% of the order was from outside China.

Currently, Shanghai's shipbuilding industry is number one in China in terms of productivity. In 2005, the industry contributed as much as 20.8% to China's total shipbuilding industry. It achieved a main business income of RMB 27.144 billion, accounting for 24.5% of China's total; its profit was RMB 845 million, which placed it third nationally. Shanghai's shipbuilding industry leads the country both in terms of its total output and economic indicators.

Shanghai's shipbuilding industry has expanded its number of scientific research personnel and its funding for R&D in recent years. In 2005, the industry had a R&D team of 2,465 people, up 13.9% from the previous year, with an average annual growth of 3.4% in the Tenth Five-Year Plan period. R&D expenditure reached RMB 870 million, up 32.4% from the previous year, with an average annual growth of 36.6%. The increased investment in science and technology has clearly upgraded the industry's technical capability. During the Tenth Five-Year Plan period, Shanghai's shipbuilding industry developed and built a good number of high-tech and high added-value LNG ships, chemical ships, oil product ships, large and high-speed container ships, train ferries, large container ships, and large bulk carriers. The industry also adopted and applied leading technologies relating to the building of high-tech ships such as LNG ships, and key auxiliary products such as the 50,000 kW diesel engines.

Insight 2-4

Asset Restructuring of Shanghai's Shipbuilding Industry

In the Tenth Five-Year Plan period, Shanghai's shipbuilding enterprises underwent a series of effective restructuring efforts in asset management and resource reallocation, thus forming a new development pattern. Jiangnan Shipyard and Qiuxin Shipyard were consolidated and restructured as the new Jiangnan Shipbuilding Group. Hudong Shipyard and Zhonghua Shipyard were combined into Hudong-Zhonghua Shipbuilding (Group) Co. Ltd. The more than 140-year old Shanghai Shipyard was restructured and merged with Jiangsu Chengxi Ship Repair and Building Yard to form Shanghai Shipyard and Chengxi Shipyard Co. Ltd. Waigaoqiao Shipbuilding Co. Ltd was formed and went into operation in 2002. In 2005, these four major shipbuilding companies attained an industrial output of RMB 16.9 billion, growing 20.7% from the previous year, and accounting for 71.8%of Shanghai's total shipbuilding industry, with a profit of RMB 360 million, accounting for 88% of the city's total. After the restructuring, these four companies became the chief driver of Shanghai's shipbuilding industry, and represent the development trend for the entire industry.

Shanghai's shipbuilding industry has become an important part of the global shipbuilding market, and an important pillar of Shanghai's foreign trade. Ships built in Shanghai's four shipbuilding bases have sailed to nearly 80 countries and regions across five continents, including such countries as Greece, Norway, the United States, the United Kingdom, and major global shipbuilding countries as Japan, Korea, Germany, Denmark, Poland, and Italy.

Shanghai's shipbuilding industry has become an important part of the global shipbuilding market, and an important pillar of Shanghai's foreign trade. Ships built in Shanghai's four shipbuilding bases have sailed to nearly 80 countries and regions across five continents, including such countries as Greece, Norway, the United States, the United Kingdom, and major global shipbuilding countries as Japan, Korea, Germany, Denmark, Poland, and Italy.

Shanghai's four shipbuilding bases are advancing together toward the objective of becoming the “flagship” of China's shipbuilding industry. Waigaoqiao Shipbuilding Co. Ltd completed its Phase One project during the Tenth Five-Year Plan period, and started its Phase Two during the Eleventh Five-Year Plan period to build large ships. The Hudong-Zhonghua Shipbuilding Group completed technical upgrading during the Tenth Five-Year Plan period, and is currently developing a large high-tech shipbuilding base. The Jiangnan Shipbuilding Group plans to start its Phase One construction during the Eleventh Five-Year Plan period. The objective is to build China's largest and most advanced comprehensive shipbuilding base for the 21st century. Shanghai Shipyard completed Phase One of its Chongming project during the Tenth Five-Year Plan period, and will start Phase Two during the Eleventh Five-Year Plan period. At the same time, Shanghai's shipbuilders, through their overseas offices, will further strengthen and improve their overseas marketing and service system. They will also set up R&D institutions in other countries, and even establish an overseas presence in ship repair and shipbuilding, through shareholding, acquisition or the building of new facilities; these activities should gain them a fair share of the international shipbuilding market.

Distribution of Shanghai's Advanced Manufacturing Industry

After over ten years of adjustment, a new industry structure has been formed in Shanghai, with key industry bases serving as spearheads, district or county-level industries as the main body, and industrial parks or zones as important carriers. Industrial distribution has been reorganized in order to become more efficient.

In 2005, the clustering of enterprises in Shanghai's “one+three+nine”¹ parks and zones began to take effect. Over 80% of the main industries were grouped together in industrial parks or zones at or above municipal level. Within these parks or zones, a new development pattern emerged, featuring a few key clusters at the core. For instance, three clusters were formed in Minhang Development Zone: electromechanical, pharmaceutical and medical treatment, and food and beverage industries. Clusters of electronic information, new materials, biomedicine, aviation and space industries occupied Caohejing New Technology Development Zone. Jinqiao Processing Zone concentrated electronic information, automobiles and parts, and modern household appliance industries. In Songjiang, the electronic information industry grew rapidly, with computer manufacturing as the mainstay. In 2005, industrial output from state- and municipality-level industrial parks or zones hit RMB 691.6 billion, up 43.8% over the previous year.

During the Tenth Five-Year period, the industrial output value of Shanghai's six pillar industries (electronic information equipment, automobile, petrochemical and fine chemicals, top-quality steel, equipment manufacturing and shipbuilding) accounted for 63.4%of the municipality's total compared to 48.6% at the end of the Ninth Five-Year Plan period. Hi-tech industry enjoyed rapid growth and gradually became one of Shanghai's main industries. With an

annual growth of 56%, the electronic information industry became the number one pillar industry and the driver of the city's output growth. Basic industries such as petrochemicals, and iron and steel, quickly underwent major upgrading and restructuring that brought them in line with the high-tech industry.

The Tenth Five-Year Plan period saw a continued large-scale adjustment of Shanghai's industrial structure and a further extension of its industrial area from 600 square kilometers to 6,000 square kilometers within the municipality. Statistics show that the six major industrial bases and industrial parks/zones at or above municipal level had an industry concentration rate of 50%. The distribution of the six advanced manufacturing industries is shown in Figure 2.8.

2.1 Microelectronics Industry Base

The clustering of Shanghai's microelectronics industry in Pudong, Caohejing, Songjiang, and Qingpu is accelerating. The “one belt, two zones” layout of the microelectronics industry has taken shape. Shanghai has bloomed into one of the most attractive investment destinations for the integrated circuit (IC) industry.

Shanghai's IC industry has achieved a historic breakthrough in recent years. It has taken its preliminary shape as a well-structured chain with clear division of labor for the IC industry, covering design, packaging, testing, and other upstream and downstream activities. Represented by Huahong NEC, SMIC, Grace, ASMC, TSMC, Hanshengke, and Xuqing, Shanghai's IC industry will have eleven 8-inch IC production lines, and six 4- to 6-inch production lines. The industry also boasts some highly competitive design providers, such as Huahong Design and Via Technologies. In addition, world leading IC packaging and testing giants, such as Intel, Amkor, ASE, STATS ChipPAC, and GAPT, have also established their offices and operations in Shanghai.

With Zhangjiang as the core and Shenjiang Road as the axis, the Pudong microelectronics belt stretches toward Jinqiao Export Processing Zone and Waigaoqiao Bonded Zone, and expands into their vicinity. As a south-north base, the belt measures 25 square kilometers of the planned area. In 2003, the IC industry sales of the Pudong microelectronics belt grew by more than 100%. Five 8-inch IC production lines were in operation, 600,000 8-inch wafers were produced, and an output of nearly RMB 7 billion was generated from wafer production.

The Caohejing New Technology Development Zone has become an ideal place for the IC industry. Sales revenue of Caohejing's microelectronics industry exceeded RMB 8 billion in 2003, up 40% over the previous year. Currently, there are over 70 IC companies in Caohejing, employing more than 7,000 people. Caohejing is one of the largest bases for chip R&D and manufacturing in China.

With a planned area of 18 square kilometers, the western part of Songjiang Industrial Zone primarily focuses on IC packaging. TSMC, the leader of the global chip OEM services, decided to build a plant here. The first phase of this project, involving a total investment of US$898 million, was completed and went into operation in 2004.

The Qingpu Industrial Zone for Taiwanese Enterprises, measuring 9.9 square kilometers in area and currently under construction, serves as the core area for developing the microelectronics industry. A number of microelectronics companies, such as ChipMOS (total investment US$3.6 billion), Hanshengke (total investment US$3 billion), and Xuqing Semiconductors (total investment US$5 billion), have flocked in. Datang Mobile and Chenxian Electronics have also settled down in this zone.

2.2 Automobile Industry Base

Shanghai's automobile industry is moving rapidly toward three strategic objectives: to sell 1 million locally manufactured cars annually by 2007; to rank among the world's top 500 companies; and to produce another 50,000 self-branded cars. While maintaining momentum amidst fierce market competition, it has gradually developed a full-range industry chain. The clustering of most automobile enterprises has positively impacted the development and growth of such bases as Shanghai International Automobile Town and Pudong Jinqiao.

In 2003, more than 600,000 cars of various models came off production lines in Shanghai and 390,000 of them were from Shanghai Volkswagen, and 200,000 from Shanghai GM. Shanghai Automotive Industry Corporation, with sales revenue of RMB 109.56 billion, was listed in the world's top 500.

Shanghai International Automobile Town is located in Anting, covering an area of 68 square kilometers. It comprises five districts: the core district, the finished vehicles and auto parts manufacturing district, the international circuit, the vocational education district, and Anting's new town. After three years of development since its inception on September 28, 2001, the town has now entered the stage of comprehensive development. Important progress has been made in the development of various functional districts, such as manufacturing, trade, international circuit, R&D, auto parts, Tongji Automobile College, and the new town.

Shanghai Volkswagen, situated in the industrial district of the automobile town, renewed its cooperation agreement with German Volkswagen for 20 years in 2002. A number of major projects were initiated, such as a project to add a manufacturing capacity of 100,000 cars per year to its third plant, and a project involving the production of 300,000 engines per year for economy cars. A state-of-the-art car testing area at Shanghai Volkswagen went into operation in 2003. All facilities were completed for the planned 8-square-kilometer auto parts area. By the end of 2003, more than 200 domestic and overseas enterprises had invested in the automobile town, representing a total contractual investment of RMB 25 billion. The circuit was fully completed and was used for the Formula One China Rally in September 2004.

Shanghai GM's Jinqiao base covers an area of 550,000 square meters. Its maximum capacity was increased to 180,000 vehicles per year in 2003. Shanghai GM has adopted a differentiated development strategy, and its 2007 target is to achieve 450,000 finished vehicles per year.

Within the next few years, Shanghai will build and maintain three automobile manufacturing bases in Anting, Jinqiao, and Lingang. It is estimated that the planned and in-progress automobile-related projects will make up some 15% of the total industrial investment for the coming three years. Shanghai's automobile industry will achieve a total output of RMB 280 billion in 2007. By 2010, China's automobile industry will have reached a capacity of two million vehicles per year, of which 1.5 million will be made in Shanghai, and the industry's total output will have surpassed RMB 400 billion.

2.3 Petrochemical Base

Centered on Shanghai Chemical Industry Park and connected with the Shanghai Petrochemical Company, Shanghai's Petrochemical and Fine Chemical Base forms a belt of 60 square kilometers on the northern flank of Hangzhou Bay. Shanghai Chemical Industry Park has a planned area of 29.4 square kilometers. It was one of China's biggest investment projects during the Tenth Five-Year Plan period, and will involve a total investment of RMB 150 billion for its Phase One. After completion, the park will achieve a RMB 100 billion industrial output.

The Shanghai Chemical Industry Park is located at the junction of Jinshan and Fengxian districts in Southern Shanghai. The park is connected to Shanghai's inner city by Expressway A4, which has access to the Shanghai-Nanjing and Shanghai-Hangzhou Highways. It is about 50 kilometers away from both Pudong and Hongqiao airports, and a dedicated within-the-zone branch railway connects it to the 113 kilometer-long Pudong Railway. Through dredged inland waterways, it is also linked to the Huangpu and Yangtze rivers. In addition to its own dedicated shipping dock, the chemical zone is just 55 kilometers away from the Yangshan Deep Water Port under construction. This efficient integrated transport network ensures convenient transportation for all investors.

The park offers the best possible investment environment to its investors, with in-park facilities for product-based projects, public utilities, logistics and transfer, environmental protection, and administrative services. The park has attracted such multinationals as BP, BASF, Bayer, Degussa, Huntsman, Mitsubishi Gas Chemical, and Mitsui, as well as such utilities giants as Suez, Vopak, Air Liquide Group, and Plexus. By the end of 2004, a total of US$8.82 billion had been invested in the park, launching it on the way to becoming Asia's largest, most advanced world-class petrochemical base.

2.4 Top-quality Steel Base

Backed by Baosteel, Shanghai's top-quality steel base is China's largest and most modern steel production base. Its core area is in the Baoshan District of northern Shanghai, bounded by the Yangtze River on its north side and the estuary of the Huangpu River on the east. During the Tenth Five-Year Plan period, the concentration of Shanghai's top quality steel industry intensified, with Baosteel accounting for over 95% of Shanghai's total steel production. The remaining 5% went to Shanghai Krupp (Sino-German joint venture), Shanghai STAL (Sino-US joint venture), Walsin Lihwa (wholly Taiwan-funded), Shangshang Steel Pipe (private), Shanghai Heavy Machinery, and castings at certain shipyards.

As a model of Shanghai's top-quality iron and steel base, Baosteel Group has made considerable structural adjustments in recent years to concentrate melting, hot-rolling, and large-scale extended processing operations in the Baoshan district in order to form three specialized production centers and develop a northern processing base. The three centers and one base are: the carbon steel plate and pipe manufacturing center in the Baosteel Co. Ltd. Area, the stainless steel manufacturing center in the No. 1 Steel Plant and its vicinity, the special steel manufacturing center in the No. 5 Steel Plant, and the Luojing extended steel processing base in Luojing of the Baoshan district.

2.5 Equipment Manufacturing Base

In order to promote the development of its equipment manufacturing industry, Shanghai planned the building of the Lingang Industrial Zone. The zone has considerable advantages in location. Lying close to Yangshan Deep Water Port and right next to Pudong Airport, Lingang New City is a comprehensive coastal city, integrating a seaport, an industrial district, and well-developed infrastructure and services.

Lingang New City has two functional areas: Haigang New City and Lingang Industrial Zone. Located on the Yangtze estuary and Hangzhou Bay in southeastern Shanghai, and 50 kilometers away from the city center, Haigang New City has a planned area of 293 square kilometers. With Dishuihu Lake as its center, the urban living and comprehensive service region of Haigang New City has a planned area of some 100 square kilometers, of which 50 square kilometers is set aside for intensive urban development for a population of 500,000–600,000.

Focusing on industrial development, the Lingang Industrial Zone has a planned area of about 200 square kilometers, 120 square kilometers of which will be earmarked for urban development for a population of nearly half a million. The main objective of the Lingang Industrial Zone is to develop a world-class modern equipment manufacturing industry. The zone will develop such industries as advanced manufacturing, modern logistics, R&D services, vocational education and training, export processing, and domestic and foreign trade so as to build itself into a comprehensive industrial zone with distinctive industry features and competitive advantages.

The Lingang Industrial Zone comprises three main functional areas: the industrial area, the modern logistics park, and the auxiliary area. The industrial area features automobile, equipment and logistic sectors, and consists of a heavy equipment manufacturing area, a medium-weight equipment area, and a high-tech industrial area. As a support for the industrial area and a complement to the Yangshan Deep Water Port, the modern logistics park is an important component of the Lingang Industrial Zone. The auxiliary area consists mainly of living facilities in addition to other functional regions for R&D, residence, and tourism.

Phase I of the Lingang Industrial Zone was divided into three parts: the heavy equipment manufacturing, the high-tech industry, and the logistics park. These three parts are linked by the Pudong-Yangshan Expressway. Priority will be given to the manufacture of automobile equipment, auxiliary equipment for ships, large machinery, and electrical equipment. The high-tech industry will focus on urban industry and R&D. Phase One of the logistics park is mainly aimed at providing logistics services for the industrial zone and the Yangshan Deep Water Port.

2.6 Shipbuilding Base

As the birthplace of China's shipbuilding industry, Shanghai currently has 19 ship building and repairing enterprises, which include four major corporations: Jiangnan Shipyard, Hudong-Zhonghua Shipyard, Waigaoqiao Shipbuilding, and Chengxi Shipyard. There are also 23 enterprises engaged in auxiliary businesses, 11 research institutes, and two colleges. The current shipbuilding capacity stands at about 3.5 million deadweight tons per year, accounting for over 40% of China's total. Its main products include civilian and offshore engineering vessels, such as oil tankers, bulk cargo carriers, chemical tankers, roll-on/roll-off ships, roll and dump ships, large LPG carriers, large container ships, large self-unloading ships and high-speed ships, as well as auxiliary equipment for ships, such as low- and medium-speed diesel engines, large forgings and castings, and steel plates for ships.

As set out in its new development plan, Shanghai's shipbuilding industry is implementing an industry-wide strategy to relocate from the Huangpu River shore to the Yangtze River estuary. The plan slates Changxing Island as the main area, and Shanghai's shipbuilding industry base will comprise Changxing Island shipbuilding base, Waigaoqiao base, and Chongming. The 8-kilometer-long coastline (starting one kilometer downstream from Xinkai Port) will be used for shipbuilding. The preliminary plan is to build seven large docks to form a capacity of eight million tons.

Waigaoqiao shipbuilding base has a planned area of 2.1 million square meters. Phase I was completed on October 18, 2003. Involving a total investment of RMB 3.214 billion and covering an area of 1.44 million square meters, the base had a capacity of 1.05 million deadweight tons. Construction of Phase Two, with a planned area of 400,000 square meters with 300,000 square meters reserved for the future, started in 2004, and was completed in 2006, with a total capacity of up to 2.5 million deadweight tons.

Shanghai Chengxi Shipyard's Chongming Base has a planned area of 1.51 million square meters, stretching along 2,350 meters of coastal line. There will be three floating docks, rated at 150,000–200,000 tons, 100,000 tons, and 40,000 tons, and one semi-dock type slipway, rated at 70,000 tons. The base's eventual shipbuilding capacity will be 1.5 million deadweight tons.

Emerging Industries

All countries across the world are striving to develop emerging industries because of their high value added, low energy consumption, and strategic significance. The emerging industries in China are mostly plagued by a low level of industrialization and outdated technologies. With enhanced investment in the past few years, Shanghai has stayed ahead of other domestic cities, but there is still a big gap for Shanghai to bridge to meet global standards.

3.1 Biomedical Industry

As one of the four emerging industries, the biomedical industry underwent intensive restructuring in terms of aggregate planning, overall layout, industrial composition, and performance during the Tenth Five-Year Plan period. Thus, a solid foundation has been laid for its sustainable development.

Despite its year-by-year decline in its share of Shanghai's economy during the Tenth Five-Year Plan period, from 2.7% in 2000 to 1.8%in 2005, Shanghai's biomedical industry gradually moved to a full-range system covering chemical raw drugs, pharmaceutics, finished Traditional Chinese Medicines (TCM), biological and biochemical

products, medical apparatus, and healthcare products. As the largest in scale of these sectors, chemical drug manufacturing was the most profitable, with an output of RMB 15.2 billion in 2005, accounting for 54% of the industry's total. Sectors with an annual output value of more than RMB 2.5 billion included medical apparatus, finished TCM products, and biological products. Healthcare products, with the smallest output value, enjoyed the fastest growth. It achieved an output value of RMB 340 million, double the figure of 2000, and its profit grew 9.4 times to reach RMB 60 million.

Investors from Hong Kong, Macao, Taiwan, and foreign countries have played a leading role in building Shanghai's biomedical industry. In the Tenth Five-Year Plan period, there was a huge influx of overseas investment into this sector, giving it a strong development impetus. The total output of foreign-invested enterprises reached RMB 13.4 billion in 2005, accounting for nearly 48.7% of the industry's total as compared to 40% in 2000. At the same time, a large number of state-owned enterprises were transformed into joint-stock companies through restructuring. The output contribution of the state-owned section dropped from 18% in 2000 to 8% in 2005, while the figure for joint-stock companies rose from 27% to 38%. Private businesses also showed rapid growth with a total asset of RMB 2.5 billion at the end of 2005, increasing nearly 20 times. Their total industrial output reached RMB 2 billion, growing 6.2 times.

In 2005, the biomedical industry in Shanghai achieved a gross output value of almost RMB 28.2 billion, up 14% over 2004. By the end of 2005, there were a total of 364 biopharmaceutical enterprises, with an asset of RMB 38 billion. The industry performed well in 2005, with a main business income of about RMB 29.4 billion, up 11% from 2004, and a profit of RMB 2.1 billion, up 1.3%. Also in 2005, the industry completed an export value of RMB 4.7 billion, up 44% over 2004, and accounting for 17% of total sales. High export proportions were seen in raw materials, with sales revenue for chemical drugs at 40%, and medical apparatus at 38%. However, the industry's national proportion was not high. Output accounted for 5% of China's total, putting Shanghai in fifth place, after Shandong, Jiangsu, Zhejiang, and Guangdong. Shanghai's 5.5% market share and 7% profit rate, were also both in fifth position.

In 2005, new products contributed RMB 4.7 billion, or 16.6%, to the industry's total output, five percentage points lower than the city's average. Investment in science and technology development totaled RMB 1.1 billion, up 79% from 2000, of which RMB 400 million went to R&D, up 75%. Both growth rates were below Shanghai's average level. R&D investment accounted for 1.4% of main business income, 0.7% higher than the average, but still far below that of developed countries.

3.2 New Energy Industry

New energy is obtained through the utilization of new technologies and new materials, such as solar energy, wind energy, and ocean energy. As conventional energy sources, such as coal and oil, are very limited, and their use causes serious pollution, Shanghai has made vigorous efforts to develop new and clean energy.

By the end of 2005, Shanghai had established five solar heat and light utilization units, and seven photovoltaic power stations as pilot projects, with a total generating capacity of 200 kW, and an annual power generation of 200,000 kWh. Eighteen wind power generators had been installed. The wind farm in Fengxian District generates 7.48 million kWh each year. In Yuqiao of Pudong and Jiangqiao of Jiading, resource-efficient power stations were set up to generate power by incinerating garbage.

Since 2000, Shanghai has given its full support to projects using solar energy and its applications. Shanghai has developed a third-generation, battery-powered prototype car and integration platform. Batteries for buses have proven to be reliable, and integration technology for finished battery-powered vehicles has reached an initial stage of development.

Despite rapid development in recent years, Shanghai's new energy industry has yet to strengthen itself in technology and competitive edge. In addition, obstacles in the way of development, such as insufficient material supplies, an immature market, financing difficulties, and so on, still lie ahead as a challenge to be overcome in the coming years.

1 “One” refers to Pudong New area; “three” refers to three state-level development zones: Caohejing New Technology Development Zone, Minhang Economic and Technological Development Zone, and Songjiang Export Processing Zone; “nine” refers to nine municipal-level industrial parks: Xin-zhuang, Kangqiao, Jiading, Fengpu, Songjiang, Qingpu, Jinshanzui, Baoshan, and Chongming.