Chapter 1
History of Industries in Shanghai

On a map of China, trace your finger along the country's great coastline until you reach its centre. There you will find the city of Shanghai. With its strategic position, at the estuary of the Yangtze River, known as China's “Golden Watercourse,” and on the banks of the Huangpu River, which connects the interior and the coastal area, it is easy to see how this city is enjoying rapid development. As early as the reign of Emperors Qianlong (1736–1795) and Jiaqing (1795–1820) of the Qing dynasty, it was changing from a sleepy little fishing town into one of southeast China's most renowned cities. It was even given the titles of “Gateway between the Yangtze River and the sea,” and the “Metropolis of Southeast China.”

By the late 1940s, Shanghai had grown into China's largest industrial, commercial, and economic center. Its position was significant not only in terms of industry and transportation, but also in terms of domestic and international trade, and finance.

When the People's Republic of China was founded in 1949, Shanghai changed its focus of economic development to domestic markets. After recovering from World War II, and entering a stage of planned development, Shanghai evolved into a large-scale comprehensive industrial base. This change was brought about by efforts to improve industry, continuous adjustments to industrial structure, a highly centralized planned economic system, and a self-reliance development strategy.

After China had adopted its reform and opening-up policy, Shanghai's economy was reborn and its industrial structure was continuously optimized. Primary and tertiary industries have been Shanghai's mainstay, taking its economy from one level to the next. In the 21st century, giant leaps in industrial optimization have thrust the city into a new stage of strategic growth.

1. Overview of Industrial Development

After the Opium War in 1840, Shanghai became one of the five open ports specified in the Nanjing Treaty. The city officially opened to international trade when George Balfour, the first British consul in Shanghai, issued the No. One Circular of the British Consulate on November 17, 1843. Shanghai rapidly adopted modern production technology and management systems from the West, and began to operate with an essentially capitalist mode of production. In the late 1930s, its foreign trade amounted to half of China's total; Shanghai also contributed to more than half of China's modern industry.

Before 1949, Shanghai was not only China's industrial center, but also the biggest trade and financial center in the Far East. In 1949, the ratio in terms of total output between Shanghai's light and heavy industries was 86.4% versus 13.6%. Textiles and food were the main players for light industry, accounting for 68.8% and 17.5% respectively in total output.

1.1 First Stage (1949–1978)

Shanghai was liberated on May 27, 1949. After the founding of the People's Republic of China, Shanghai began to streamline its market economy, and quickly restored normal financial circulation and the supply of daily necessities. In 1952, Shanghai's total industrial and agricultural output increased to RMB 6.357 billion from RMB 3.336 billion in 1949, and the ratios of primary, secondary and tertiary industries in its GNP were adjusted to 3.8%, 53.9%, and 42.3%. Subsequently, the First Five-Year Plan provided the foundation for Shanghai's industry and had an influence on its economic development for some time to come.

At that time, China faced a complex international situation and such political issues as Taiwan's liberation. An analysis of the internal and external situation indicates that there were three main factors affecting Shanghai's economic development during this period. The first factor was China's strategy to leave its coastal region undeveloped, affecting Shanghai and the coastal cities of Guangdong, Fujian, and Jiangsu. For instance, none of the 156 prioritized projects in the First Five-Year Plan was put in Shanghai. This strategy was a substantial restriction on investment needed for economic development.

The second factor was the guiding ideology, which aimed to convert Shanghai from a consumer city into a producer city. In the immediate post-1949 period, Shanghai's tertiary industry was fairly developed; light and textile industries formed a large proportion in secondary industry, and the city was regarded as a typical consumer center. At that time, the conversion from a consumer city to a producer city implied the sacrifice of tertiary industry in support of the development of secondary industry.

The third factor was Shanghai's internal development strategy. Shanghai's industrialization during this period was characterized by the internal development strategy of “self-reliance.” This strategy followed the experience of socialist industrialization in the Soviet Union, where priority was given to the development of heavy industry. That is why this period saw an economic priority shift from a backward industrial structure with light industry as the mainstay, to heavy industry. Therefore, the ratio of light to heavy industries, in terms of fixed asset investment, remained at 1:8 for some time. Massive investment in heavy industry pushed forward its development in terms of both supply and demand. Another indirect effect of the internal strategy was to establish a mature industrial system. Hence, in the process, an improved and integrated industrial system was set up to provide a wide variety of industrial sectors. As a result, Shanghai's industry covered almost every industrial sector, except for a limited number of energy sources, and industrial raw materials. These were the three factors that helped Shanghai grow gradually into China's largest industrial base.

The specific measure taken at that time to speed up heavy industry was to invest in key areas, bringing rapid development to the steel, machinery and electricity industries. A dramatic transformation took place in 1960, when the percentage of heavy industry surpassed that of light industry for the first time. During the 1960s, the priority of development was given to 18 significant technologies, in order to set up six new industries. Such an adjustment played a decisive role in molding Shanghai's basic industrial structure. This momentum continued into the 1970s, leading to the formation of a comprehensive, integrated, industrial system, with metallurgy, chemicals, machinery and textiles as the four main industries.

Despite the strategy of leaving the coastal regions undeveloped in the first stage, Shanghai still enjoyed a high position in the domestic economy, and received much attention from the central government. During 1949–1978, with 0.00067% of the land and 1% of the population in China, Shanghai contributed 16.7% of the national fiscal income and 10% of industrial output. In terms of per capita labor productivity in fully state-owned enterprises, Shanghai was 1.3 times the national average in 1952, and this figure rose to 2.4 times in 1978. In the same year, Shanghai accounted for 7.5%of the national GDP, 19.6% of national fiscal income, 29.6% of the total exports and 4.2% of investment. In other words, Shanghai, with just 4.2% of investment, contributed 7.5% to the country's GDP, 29.6% to exports, and 16.9% to fiscal income.

At that time, a very important external factor for Shanghai's development was the access to the cheapest raw materials from across the country, which guaranteed economic efficiency. Shanghai lacked mineral resources, and its industrial development depended mainly on a consistent supply of raw materials and energy from the interior. Shanghai was known nationwide for its leading technology; thus, it was more efficient to provide Shanghai with a secured resource supply. Admittedly, low feedstock prices and the relatively high prices of finished products put Shanghai at an advantageous position in the division of labor in the country, and played a pivotal role in its development. A lack of resources resulted in an inherent requirement for more sophisticated processing, which in turn brought about an increasing number of new industrial sectors, and continuously improved the city's industrial system. Shanghai's strategic position in the domestic division of labor assured this change. In summary, leading technologies and the favorable position in terms of resource allocation were the driving forces for its industrial development.

Moreover, the rapid growth in Shanghai's industry had also benefited from the secondary multiplier effect in the 1930s. The boom in the 1930s provided the city with the best infrastructure in China, and in the 1950s and 1960s, brought about relatively high investment returns in Shanghai's industrial development. This was also the main internal factor for Shanghai's rapid industrial growth in this period. However, Shanghai's sudden industrial expansion was not accompanied by large investments in urban construction, resulting in a serious lag in infrastructure. For 30 years, prior to China's reform and opening-up, Shanghai only accounted for 3.6% of the country's total infrastructure expenditure. Its total spending on urban infrastructure from 1950–1978 was a mere RMB 6.008 billion. Apart from a few industrial satellite towns, the main approach was to develop almost 200 factories in the downtown area, with very little spending on infrastructure facilities. The resulting high returns from investment were almost impossible for other countries in the same period. But this also created environmental and transportation pressure on Shanghai's future city development, and these factories were relocated during the structural adjustment carried out in the 1990s.

During the 1970s, technical equipment in many enterprises became increasingly outdated as a result of a lack of continued investment. At the beginning of the period of reform and opening-up, the authorities conducted an extensive survey of Shanghai's industry, and the findings were shocking. According to a survey of 88,000 items of equipment in light industry, 40% of the equipment remained at the technical level of the 1930s/1940s, 50% was at the technical level of the 1950s, and only 10% was at the level of the 1960s/1970s. 43% of dyeing and finishing equipment for wool in the textile industry was installed before 1949. Most machining tools were still of the primary processing type, such as planes and lathes. In addition, Shanghai's factory buildings were badly congested. For example, the passages, corridors, and workshops at the Shanghai Watch Factory were packed with cocklofts. With outdated and in-efficient technical equipment, it was very difficult to fabricate high quality products.

In this period, the development of Shanghai's three industrial sectors was unbalanced. From 1952–1978, Shanghai's average annual GDP growth was 8.76%, with 2.71% for primary industry, 10.7% for secondary industry, and 4.57% for tertiary industry. The proportion of primary industry in GDP dropped from 5.9% to 4%; secondary industry rose from 52.4% to 77.4%, and tertiary industry dropped from 41.7% to 18.6%. In other words, tertiary industry shrank while secondary industry grew rapidly, and this imbalance seriously hindered Shanghai from functioning as a comprehensive city. Shanghai's transformation from a comprehensive to a producer city came about at the loss of some key urban economic functions, such as finance and trade. Moreover, industries of high energy and material consumption as well as high capacity, such as chemicals and metallurgy, took the lion's share. This imbalance had negative consequences for a city which was seriously short of materials. Yet from 1940–1979, its GDP grew 9.5 times, with energy consumption rising 24 times, and steel consumption jumping 75 times.

Secondly, the city suffered from acute traffic congestion due to its industrial growth. Every year, huge consignments of materials from different places were transported to Shanghai for industrial production and processing, while large quantities of finished industrial products were shipped out, to all parts of the country.

1.2 Second Stage (1978–1991)

The second developmental stage was a period of slower growth for Shanghai's economy, with an average annual GDP growth of 7.4%, 1.6 percentage points lower than the national average.

For 30 years after the founding of the People's Republic of China (PRC), it was the unusually high returns from industry that underlay an exceptional turnover rate of Shanghai's fiscal revenue to the central government. It is estimated that the average annual turnover rate was as high as 87%. Since the 1980s, a fiscal revenue responsibility system had been implemented in other regions of China, but for Shanghai, the central government still followed the old system, resulting in as high a fiscal turnover burden as ever. On the other hand, as the secondary multiplier effect had diminished, Shanghai's industry experienced a reduced economic influence on outlying regions. With fundamental changes in the planned economic system, Shanghai's high industrial returns began a reverse trend.

Firstly, the lag in infrastructure resulted in a sharp decline in investment returns. The historical advantage gained in infrastructure had been used up within the 30 years of industrial expansion. Moreover, for 35 years, during which a uniform collection and spending system was adopted for fiscal revenue, the central government funneled only 1% of the city's fiscal turnover as investment in municipal facilities.

Secondly, the price transfer effect experienced a reverse trend. After 1978, China reformed its planned material supply system, and gradually established a “double-track” price system for means of production. “Double-track” refers to two economic systems: one was the planned economy controlled by the central government; the other was the market economy. Mandatory national planning had been decreasing for some time, leading to fewer materials being allocated to Shanghai both in quality and variety. More specifically, the proportion of planned supply of energy resources and materials to Shanghai dropped sharply from 80% in 1978, to about 25% in 1988. A rapid drop in the supply of raw materials and resources at par caused a continuously increasing cost to Shanghai's industry and a gradual decrease in economic efficiency. While the prices of energy and raw materials went up sharply, it was hard to get a corresponding price raise for Shanghai's industrial products, because of price controls and intervention from the main places of origin and sale. This price difference resulted in accumulated tax and profit of over RMB 5 billion flowing from Shanghai to other places in China.

Thirdly, the economy of scale dwindled in most areas. Overall, the reputation of Shanghai's products as the country's finest was challenged, and the share of Shanghai products at home and abroad decreased dramatically. As Shanghai's conventional market scope was gradually shrinking, products from other places were flooding the Shanghai market. The 1980s was a painful decade when Shanghai's long-term dominant industries gave way to others, and little by little, the city lost its prominence in the domestic market. Moreover, the early-starter advantage gained by sister provinces and municipalities during the gradual nationwide reform put severe pressure on Shanghai, accelerating the decrease in the share of Shanghai's products in the domestic market.

In the 1980s, Shanghai played the role of “backfielder” in reform and opening-up to the outside world, slowing down its pace of development. When Shenzhen, together with Hainan and other cities, was first opened up in a pilot project, Shanghai was brushed aside in the early stages of the opening-up and reform in view of its special position in China's economic structure. Therefore, the policy barrier restricted Shanghai's economic development.

With regard to the development of the three industries, Shanghai's GDP grew at an average annual rate of 9.9%, from 1979–1991, with 9.4% in primary industry, 7.9% in secondary industry, and 15.7% in tertiary industry. Rapid growth in tertiary industry led to its increasing proportion in the national economy. During the initial stage of opening-up and reform in 1979, tertiary industry contributed to 18.8% of the GDP, which jumped to 34.6% in 1991 after experiencing a rapid growth in the 1980s. The proportion of secondary industry decreased from 77.2% in 1979 to 61.7% in 1991 and that of primary industry dropped from 4.0% to 3.7%.

Shanghai is China's largest economic center, but its primary industry, agriculture, has always made up a small share of the national economy. For example, in 1978, its gross agricultural output only accounted for 3% of the city's GDP. However, the city's reforms in industry and the economic system began with agriculture. At that time, the suburbs accounted for more than 95% of the city's total land area and 49% of the total population. These suburbs were mainly responsible for supplying nonstaple food to the entire Shanghai municipality. That is why structural adjustments in agriculture were of special significance to Shanghai.

When the household contract responsibility system was implemented in some provinces and municipalities, Shanghai was unsure how to reform its rural economic system. In Shanghai's countryside, production was arranged in three administrative tiers: the lowest level was the production team, the next was the production brigade, and the third was the people's commune. These levels had already developed into economic units, which possessed a fair amount of fixed assets, such as agricultural machinery and facilities. For example, in 1979, fields ploughed by tractors, and those mechanically drained and irrigated in Shanghai accounted for 86.9% and 98.2%, respectively, of Shanghai's farming area. Additionally, industrial enterprises set up by production teams in the countryside contributed to 35% of the gross agricultural output, which was far higher than the national average. That was why the household contract responsibility system was not implemented in Shanghai's rural areas until 1983. Two key factors for Shanghai's countryside were the implementation of the household contract responsibility system and the reorganization of the people's commune system. These changes motivated a vast number of farmers to improve productivity, raise production levels, and improve the marketability of agricultural products. For instance, labor productivity improved 1.57 times in 1985 over 1982, and the marketability of cotton, oil seeds, vegetables, and other nonstaple food products stayed above 95%.

In 1988, Shanghai promulgated “Decision to Construct Nonstaple Food Production Bases in Shanghai and Reform Production and Sales Systems” in order to ensure a stable supply of agricultural products to the city. This reform was designed to adjust the agricultural structure in light of the new trends of suburban agriculture. In 1992, animal husbandry output reached RMB 3.72 billion, exceeding crop production for the first time by six percentage points. Animal husbandry contributed to 47% of the total agricultural output.

Shanghai's industry went through two development periods within 13 years. The first period (1978–1984) was mainly characterized by economic rehabilitation and adaptation, with an emphasis on developing products with short investment cycles in order to increase production supply capacity, upgrade product quality, and fill the market gap. Through two years of rectification (1977–1978), Shanghai's industry recuperated somewhat, but overall improvement in industrial structure only began in 1979. In accordance with the policy of “adjustment, reform, rectification, and improvement” made by the central government in April 1979, Shanghai formulated a three-year economic adjustment plan. Adjustment measures adopted included speeding up consumer goods production, reorienting the service of heavy industry, and conducting industrial restructuring. Thus, the gross industrial output value of the city increased to RMB 72.812 billion in 1984, representing a growth of 47.7%, in terms of the gross industrial output value index, over the previous seven years. The proportion of light industry in Shanghai's industrial system continuously increased, from 51.8% in 1978 to the highest point of 58.1% in 1981. During this period, there was a reasonable increase in the output of such main industrial products as bicycles, sewing machines, watches, and music recorders. From 1978–1988, seven industries grew rapidly at a rate of over 10%. These were fodder, electronics and communication equipment manufacturing, garments, arts and crafts, beverages, plastic products, and chemical fibers. All of these were in light and electronics industries, which conformed to the country's policy of giving priority to the development of light industry.

The second period (1985–1991) focused on fostering the pillar industries. In order to achieve a transformation from extensive to intensive industry, Shanghai embraced the principle that its industry should aim to be energy- and material-efficient, and technology-intensive. From 1986, Shanghai restructured 19 sectors, including automobiles, power station equipment, iron and steel, petrochemicals, tires, and household appliances. At the end of 1990, it prioritized development in such sectors as sedan manufacturing, communication equipment, microelectronics and computer making, power station equipment, petrochemicals, electromechanical and chemicals, mechatronics, equipment, household appliances, and refined chemicals. This adjustment continued into the eighth Five-Year Plan period, when Shanghai was still focusing its efforts on fostering its six pillar industries.

In addition, through several major adjustments in the 1980s, Shanghai set up eight industrial zones, such as Pengpu and Beixinjing, in its immediate outskirts. In the remote outskirts, priority was given to the construction of seven industrial satellite towns, such as Wusong and Jinshan. However, although the urban area continuously grew, there was no overall geographical redistribution of industries; most were still located in the vicinity of the city center. By the end of 1987, within a 261-kilometer downtown area of Shanghai (excluding Wusong and Minhang Districts) were stationed 5,603 industrial enterprises, employing 2,162,400 people and generating a gross industrial output value of RMB 61.028 billion. This accounted for 47%, 60%, and 66%, respectively, of the city's gross output value. On average, there were 22 enterprises per square kilometer, with 8,285 employees, and a gross industrial output value of RMB 234 million. In the 149-kilometer old city area, which was composed of ten districts, each square kilometer typically held 34 enterprises, with 13,965 employees, and a gross industrial output value of RMB 360 million. Various industries took up 53.5 kilometers of the inner city, which represented 20.5% of the total downtown area. This shows that the key problem was the industrial layout, with overcentralization in central Shanghai, particularly in the old city area. Large factory buildings located along the Huangpu River and in other downtown areas hindered tertiary industry from full development.

1.3 Third Stage (1992—Present)

After Deng Xiaoping made his inspection tour of southern China in 1992, Shanghai made a decision to conduct strategic adjustments to its industrial structure. This was in accordance with the strategies formulated at the CPC Fourteenth National Congress to build Shanghai into “One Leader and Three Centers.” A clear-cut industrial development principle was put forward, giving priority to tertiary industry, adjusting secondary industry, and steadily improving primary industry. In the Eighth Five-Year Plan period (1991–1995), Shanghai persistently followed this principle in stepping up its efforts to promote industrial upgrading through restructuring. An idea was put forward that industrial structure should be adjusted in light of the city's function and social environment. Shanghai explored new approaches to achieve harmony between economic development, social progress, and the city's prosperity, making Shanghai's industrial structure increasingly efficient. The proportions between primary, secondary, and tertiary industries were adjusted from 4.3:64.9:30.8 in 1990 to 2.3:57.6:40.1 in 1995. Tertiary industry, the new growth points were high-tech industry, and the six-pillar manufacturing industries (automobiles, communication equipment, ¹ power station equipment, ² petrochemicals and refined chemicals, iron and steel, and household electronic and electrical appliances). Tertiary industry continued to grow fast, as its portion of GDP increased from 34.5% in 1990 to 45.1% in 1995. The high-tech industry also experienced fast development, accounting for about 10% of the city's gross industrial output value in 1995. A golden opportunity appeared for the construction industry with the astonishing advances in city construction centered on urban road networks and the development of the district of Pudong. In 1995, the city's construction industry achieved a gross output value of RMB 39.1 billion, with areas under construction amounting to 35,130,000 square meters, and completed areas reaching 11,810,000 square meters. Suburban agriculture developed rapidly, with a secured supply of staple food to the suburbs and nonstaple food to the city. Meanwhile, the city speeded up the pilot project of building large-scale and intensive installation agriculture bases.

In the Ninth Five-Year Plan period (1996–2000), Shanghai continued to implement its industry development policy for tertiary, secondary and primary industries. In accordance with the principle of “informed decisions and calculated choices,” it made further efforts to adjust its industrial structure and the internal structure of different sectors. According to the government requirement to integrate the city and the countryside, the productivity configuration and the city's functional layout were continually optimized to drive industries to become more efficient, advanced, and modern, to add more stamina to Shanghai's economic development, and to improve its service standards in connection with the city's position as a dynamic economic center. The industrial growth rate continued to slow down, but remarkable results were obtained for some pivotal industries by aiming for higher targets. The six pillar industries (namely, automobiles, information and communication equipment, packaged power station and large electromechanical equipment, petrochemicals and refined chemicals, iron and steel, and household appliances) contributed more than 50% of gross industrial output value. The hightech industry developed rapidly, accounting for approximately 20% of gross industrial output value. It is worth mentioning that tertiary industry contributed to 49.59% of the GDP in 1999, exceeding secondary industry for the first time in history. And in 2000, the last year in the ninth Five-Year Plan period, the proportion of tertiary industry reached as high as 50.63%. This indicates that the driving force for Shanghai's economic growth had changed from secondary industry to a combination of secondary and tertiary industries. In the meantime, agriculture began a new path, changing from suburban agriculture to modern metropolitan agriculture.

In the Tenth Five-Year Plan period (2001–2005), Shanghai's top task was to improve its international competitiveness, to stress the development of primary and tertiary industries, and to encourage the growth of secondary industry. The city also continued its policy of developing industry in the sequence of tertiary, secondary, and primary. A great deal of effort went into the development of industries promising high value added and more job opportunities. Furthermore, the role played by scientific and technological progress and informatization in pushing forward industrial progress and the transformation of traditional industries, the role played by pillar industries in driving economic growth and structural upgrades, and the role played by the integration of different industries to promote industrial innovation, were strengthened to promote structural and industrial optimization.

The six pillar industries established in this period were information, finance, business and trade, automobiles, packaged equipment, and real estate. In addition, the city made concerted efforts to develop four emerging industries as new areas of economic growth; the four were biomedicine, new materials, environmental protection, and modern logistics. Shanghai adopted a policy of highlighting key areas in traditional industries, and kept the policy flexible according to the actual status of a particular industry. For example, Shanghai encouraged the use of information technology to improve the process control level for large-scale and continuous processing industries, and continually optimized and developed petrochemicals and steel as the two basic industries. This method further compelled enterprises to adopt advanced, applicable technologies to transform traditional industries. An outstanding feature of this period was that a great deal of emphasis was placed on the development of metropolitan industries. Firstly, these industries included metropolitan agriculture, such as export-oriented agriculture, tourism agriculture, installation agriculture, and ecological agriculture.

Secondly, to stay market-oriented, Shanghai also encouraged entrepreneurship in such metropolitan industrial sectors as clothing, food processing, interior decoration, packaging and printing, cosmetics and detergents, diamond processing, arts and crafts, and cultural and sports products.

Thirdly, metropolitan tourism was developed as a complement to business, culture, sports, and exhibitions.

The Suggestions by CPC Shanghai Municipal Committee for Formulating the Eleventh Five-Year Plan for Shanghai's Economic and Social Development was adopted in December 2005. This document outlined the importance of establishing a top-notch service industry and an advanced manufacturing industry in Shanghai and enhancing the city's reputation as an international financial and shipping center. The document also placed particular emphasis on improving overall industrial standards through innovation.

2. Industrial Restructuring

2.1 Overall Analysis of the Structural Evolution in Shanghai's Primary, Secondary, and Tertiary Industries

To define and improve a city's industrial structure, the first step is to analyze its current orientation and function. In stepping up its industrial restructuring, Shanghai acted in accordance with the policy of “One Leader, Three Centers” put forward by the central government. The city's objectives for industrial restructuring were as follows: vigorously developing tertiary industry to expand its scale and improve its structure, actively adjusting secondary industry to upgrade its economic strength, and steadily improving primary industry.

When China first established its industrial and national economic systems in the initial period after 1949, there was no competition at all, as the entire economy came under the planned system. Efficiency in the economic system was maintained largely by means of propaganda, motivation, and administrative directives from upper to lower levels. These factors, together with the disruptive effects of various shifts in government policies, resulted in volatile fluctuations followed by major restructuring; all these made it hard to break through regional barriers. Shanghai enjoys considerable geographical and historical advantages: it is located on the banks of the Yangtze River, at the mouth of the Huangpu River, affording it access to both river and marine transportation; it is also rich in human and information resources. Its disadvantages lie in its limited land and natural resources. These characteristics determined Shanghai's pattern of economic development in the years of the planned economy.

Shanghai was once the jewel of China and the Far East, and a renowned financial, trade, and economic center. In 1952, shortly after the founding of the People's Republic of China, the proportions of Shanghai's primary, secondary and tertiary industries in GDP were 5.9:52.4:41.7, a figure similar to other internationally advanced cities. Due to a difficult international political climate, particularly economic sanctions imposed by the United States, China lost most of overseas markets, and was forced to foster relationships solely with socialist countries, such as the Soviet Union. Together with these vanished markets was also diminished the possibility of obtaining global financing and conducting international trade. As a result, Shanghai's economy was largely focused on industrial development in order to adapt to socialist industrialization and implement a planned economy. As Shanghai's function in the economy changed, the city gradually evolved from a multifunctional cosmopolis into a single-functional city, and from a comprehensive city into a producer city.

From 1952–1978, Shanghai's average annual GDP growth was 8.78%, with 2.71% for primary, 10.7% for secondary, and 4.57% for tertiary industries. In this period, the proportion of secondary industry in GDP increased from 52.4% to 77.4%, while the figure for tertiary industry dropped from 41.7% to 18.6%. A shrinking tertiary industry and a rapidly expanding secondary industry resulted in competition between these two industries. In 1949, the number of financial institutions shrank from 648 to four, and the financial market disappeared. Shanghai not only lost its strength in finance and trade, but also its advantage in secondary industry, in which industries with high energy and material consumption and high transport volume, such as chemicals and metallurgy, had had a substantial share. The real estate industry collapsed, after public ownership of land was adopted, and housing was incorporated into the welfare system in the 1950s. The service industry, including such sectors as transport, post and telecommunications, and tourism, dragged its foot. In 1978, the city's GDP split into primary, secondary, and tertiary industries was 4.0:77.4:18.6.

In 1985, the State Council approved the Outline of the Report on Shanghai's Economic Development Strategies. Subsequently, Shanghai treated industrial restructuring as a significant measure in its economic development. Finance, tourism, real estate, and consulting grew rapidly, helping the city rebuild its reputation as an economic hub.

In the 1990s, a major turning-point opportunity appeared for Shanghai to boost its economic take-off. In view of the upbeat situation both at home and abroad at the turn of the millennium, Shanghai kicked off the development of Pudong. This was in part inspired by Deng Xiaoping's initiatives, and later obtained considerable support from the central government. In June 1990, the central government announced a series of policies to support Pudong's rapid infrastructure development and attract more foreign investment. Guided by the concept of relying on Puxi (the old city area), and seeking interactive development between Pudong and Puxi, Pudong could upgrade its industry by relying on Puxi's industrial base. It could also tap idle assets, especially existing land assets, for the rebuilding of Shanghai into a modern financial and trade center, and for the optimization and adjustment of the city's industrial structure. All these factors would attract large development investments and promote structural optimization.

In December 1992, in light of the goal to build an international metropolis, the Shanghai Municipal Government decided to make strategic adjustments in the city's industrial structure. The previous development sequence of “secondary, tertiary, and primary” was adjusted to “tertiary, secondary, and primary.” In other words, the order of priority was to prioritize tertiary industry, actively adjust secondary industry, and steadily upgrade primary industry. Through adjustment and relocation, land use for secondary industry was reduced while that for tertiary industry increased.

Shanghai's strategic objective was to reinvent itself as an international economic center with five basic functions: distribution, production, management, service, and innovation. Shanghai had to make sure that its industrial structure was compatible with these core functions. Thus, Shanghai has persistently pursued the principle of “high added value, high technological content, increased integration between industries, low labor cost, and less pollution.” Industrial structure was adjusted on three levels: prioritizing tertiary industrial development, retaining part of the light and textile industry in the inner city, centralizing the development of some industries in the immediate suburbs (including machinery, electronics, automobiles, textile, heavy chemicals, and urban supporting industries), and developing basic and raw material industries in the outlying suburbs.

In December 1995, Shanghai Municipal Government further specified the key areas for industrial development. For tertiary industry, focus was placed on six sectors: finance and insurance, commodity circulation, real estate, tourism, and consulting. For secondary industry, automobiles, information equipment for communication, packaged power station equipment and large electromechanical equipment, household appliances, petrochemicals and refined chemicals, and steel were treated as the six pillar sectors. Priority was also given to three high-tech industries: modern biology and new medicine, computer and large-scale integrated circuits, and new materials. The development of these 15 industries was designed to drive primary industry toward metropolitan agriculture, and bring substantial changes to the indices of Shanghai's aggregate economic strength. Accordingly, tertiary industry, the six pillar industries and high-tech industries in secondary industry soon became the new growth areas in Shanghai's economy.

The Outline of the Eleventh Five-Year Plan for Shanghai's National Economic and Social Development, passed in January 2006, further stressed the importance of forming an industrial structure with a service-based economy as its mainstay. Continuous efforts will also be made to transform the city's development mode and improve its competitive strength. Priority was given to the development of a modern service industry and advanced manufacturing industries. The outline also highlighted a shift toward innovation-driven development, which would play an important role in promoting structural optimization and upgrading.

2.2 Analysis of Internal Changes in Shanghai's Primary, Secondary, and Tertiary Industries

Before the reform and opening-up of China, Shanghai's industrial structure had three defining features: first, the production units were the main vehicle for economic activity; second, industrial output came last in the city's GDP; and third, tertiary industry contributed little to the national economy. After 1978, a market-oriented economic reform started in China, which helped straighten out Shanghai's irrational industrial structure.

2.2.1 Development of secondary industry

According to “Industrial Categories in the National Economy” (GB/T4754-2002), secondary industry refers to mining, manufacturing, production and supply of electricity, gas and water, and building industries. We will examine the development of Shanghai's secondary industry by taking a look at the evolution of the city's industrial structure.

The stage of shifting emphasis from heavy industry to light industry (1949–1957)

On the one hand, this was a recovery period for China's national economy; on the other, it marked the implementation of China's First Five-Year Plan (1952–1957). The identifying feature of this stage was that Shanghai's industrial structure prioritized development in heavy industry, but light industry continued to develop. The production index for Shanghai's heavy industry grew at an annual rate of 24%, far exceeding 11.3% for light industry. Heavy industry's share increased from 11.8% to 29.1%. An important characteristic of a heavy industry-centered industrial structure is its dependence on the raw material industry. The proportion of raw materials within heavy industry rose from 28.1% to 41.4%, up 13.3 percentage points over 1949. Shanghai's previous industrial structure was shaped by the order of light, textile, and heavy industries; after 1949, the order changed to heavy, light, and textile industries.

The stage of structural fluctuations (1958–1965)

During this period, Shanghai's industrial structure, impacted by two major industrial reorganizations and the “Great Leap Forward,” experienced extreme fluctuations, which were mainly reflected in the major ups and downs in light and heavy industries (Table 1.1). With regard to industrial layout, from 1959 to 1966, Shanghai established and expanded ten suburban industrial zones (Wusong, Yunzaobang, Pengpu, Taopu, Beixinjing, Caohejing, Changqiao, Gaoqiao, Qingningsi, and Zhoujiadu). These zones, along with the five satellite towns established in the 1950s (Minhang, Wujing, Anting, Jiading, and Songjiang), formed a circle around the city area of Shanghai.

The stage of arduous development caused by severe industrial fluctuations (1966–1976)

During the ten-year Cultural Revolution (1966–1976), political instability seriously disrupted Shanghai's industry, causing enormous losses. However, there was still some progress in Shanghai's industry

(Tables 1.2 and 1.3). Between 1966–1970 and 1971–1975, China implemented its third and fourth Five-year plans. During the Third Five-year plan period, Shanghai's economy was very unstable, but

the planned output values and volumes for steel, electricity, and other industries were still fulfilled or even overfulfilled. During the Fourth Five-Year Plan period, Shanghai's industries registered an annual average growth of 7.48% despite economic fluctuations and political upheavals.

The stage of industrial adjustment and recovery (1977–1983)

The ten years of the Cultural Revolution brought enormous losses to Shanghai's industry. In order to recover from the unrest and restore a normal order to production, China took remedial measures at the end of 1976 to get its industrial enterprises back on track. At that time, emphasis was placed on industries of all types in Shanghai. From October 1976 to the end of 1978, Shanghai adopted the following six measures to recover its industrial prowess: (1) Streamline leadership at various levels, and restore the director responsibility system under the leadership of the Party Committee; (2) Conduct an educational campaign to learn from Daqing; (3) Improve and enhance management in industrial enterprises; (4) Conduct a “Quality Month” campaign to improve product quality; (5) Promote a socialist labor excellence drive with a focus on economizing and increasing production; (6) Restore the bonus system to increase employees' incomes. The implementation of these policies successfully restored Shanghai's industry, yet problems remained with the industrial structure under the combined effect of the planned economy and the Cultural Revolution. In 1979, in order to carry out the central government's policy of “adjusting, reforming, streamlining, and improving,” Shanghai formulated a Three-Year Economic Adjustment Plan to solve the conflict between industrial development and the people's standard of living. It also emphasized the development of light and textile industrial products and encouraged more exports. The plan also called for a concerted effort to develop science and technology and propel the national economy with modern advanced technology. Through years of adjustment, Shanghai's industry made some headway (Figure 1.1), and the ratio of light to heavy industries changed from 49.3:50.7 in 1978, to 55.1:44.9 in 1983.

The stage of a market—oriented industrial economy (1984–1991)

This was the stage when China developed toward a market economy in all aspects. In December 1984, the State Council approved the Outline of the Report on Shanghai's Economic Development Strategies, which underlay Shanghai's industrial policies in the mid- and late 1980s. In terms of structural adjustment, the outline favored a nonequilibrium industrial development strategy, which relied on leading industries to fuel the take-off of industry as a whole. It also proposed to shift Shanghai's industrial growth pattern from extensive to intensive in light of the concept of “low energy and material consumption, low transport volume, low waste, high technological content, and high added value.” Shanghai entered a period of fostering its pillar industries and adjusting the mix of leading products. In 1988, there was an overheating in the national economy, leading to a fairly serious fluctuation in Shanghai's industrial growth (Figure 1.2). On the whole, however, because of the industrial

restructuring in 1989 and 1990, the nationwide conflict between aggregate supply and demand was eased by 1991.

The stage of strategic industrial adjustments (1992–1997)

To build Shanghai into “One leader and Three Centers,” Shanghai Municipal Government decided to carry out strategic adjustments to the city's industrial structure at the end of 1992. The development sequence of “secondary, tertiary, and primary” was adjusted to “tertiary, secondary, and primary,” which meant prioritizing the development of tertiary industry, actively adjusting secondary industry and steadily improving primary industry. Six pillar industries were also defined and established during this period from the end of 1993 to the beginning of 1994 (Table 1.4).

The stage of continued optimization of industrial structure (1997–present)

Despite the healthy growth pattern of the six pillar industries in the mid- and late 1990s (Figure 1.3), their head-start effect and stimulation of Shanghai's economy began to wane by varying

degrees. It was against this economic backdrop that Shanghai set the strategic target to “face the new century with optimism, attain new heights, and create new splendors” with a view to further optimizing industrial structure. In manufacturing, new leading industries slowly emerged, including information, modern biology and new medicine, and new materials. Shanghai accelerated the industrialization of scientific research findings while at the same time adopting high technologies in industries. The city continued to nurture its six pillar industries and increase the value added of their products; high technologies were employed to improve the development of traditional industries, fostering new economic growth areas. A new industrial structure featuring high-tech and advanced processing gradually took shape.

In 2000, Shanghai Municipal Government adjusted the pillar industries for the Tenth Five-Year Plan as follows: electronic information equipment, automobiles, petrochemicals and refined chemicals, fine steel, power station equipment and large packaged equipment, and modern biomedicine. It can be seen that this adjustment put even more emphasis on the role of new technologies for the pillar industries. This structural optimization was rewarded with remarkable results. In 2004, these pillar industries achieved a gross industrial output value of RMB 832.38 billion, up 23.9% over the previous year, accounting for 64.6% of the total output value of industrial enterprises above the designated scale in Shanghai, and pushing the city's industry up by 14.8% (Figure 1.4).

The Outline of the Eleventh Five-Year Plan for Shanghai's National Economic and Social Development approved in January 2006 required that the level, quality, and competitive edge of the manufacturing industry should be further improved so as to fully utilize Shanghai's unique advantage as a strong manufacturing base. The future of Shanghai depended on large industries, projects, and bases. Therefore, efforts would be redoubled to implement the branding strategies and enhance the city's innovation capability in order to establish, as soon as possible, a group of internationally competitive large enterprises and top brands supported by their own intellectual property rights (IPR). At the same time the manufacturing base would be relocated to the suburbs (Figure 1.5).

Development of high-tech and metropolitan industries

In March 1999, Shanghai's municipal government pointed out in a report titled Building New Heights for Shanghai's Industry that Shanghai should form an industrial system made up of high-tech industries, pillar industries, and a metropolitan industry. These industries have now become important drivers of Shanghai's economic development.

Shanghai's high-tech industry is mainly composed of such fields as electronic information, biomedicine, photo-mechanic-electronic (PME) integration, environmental protection, aerospace, geospace, marine engineering, and nuclear technology application. In 1992, Shanghai's high-tech industry only took up 4% of the gross industrial output value; in 2005, the high-tech industry achieved a gross output value of RMB 482.667 billion, up 22% over 2004, and accounting for 28.6% of the city's gross industrial output value. By 2006, Shanghai had formed a cluster of high-tech industries, with a focus on electronic information, biomedicine, and new materials. Meanwhile, one zone and six parks were established, including Zhangjiang High-Tech Park, Caohejing New Technological Development Zone, Shanghai University Science and Technology Park, China International Textile Science and Technology Industrial City, Jinqiao Modern High-Tech Park, and Jiading Technology Intensive Zone for Non Government Companies. This has enabled the city's industrial layout to gradually move from a scattered pattern to a clustered one (Table 1.5).

Metropolitan industry refers to an industry that can comply with the requirement for the sustainable development of a metropolis, sufficiently utilize the metropolitan means of production, create employment opportunities, and satisfy such unique needs and requirements as residents' needs for consumption upgrading and urban environmental protection. The evolution of metropolitan industry requires a city to gradually phase out its traditional manufacturing industries, and upgrade the technical levels of urban industries. The period of 1996–1997 saw much preparation

and planning; by 1998, Shanghai officially announced its plan to develop metropolitan industry, while still optimizing and upgrading its existing industries. The metropolitan industry did not see a substantial kickoff in Shanghai until 2000. The focus was placed on clothing and apparel, food processing, packaging and printing, interior decoration, cosmetics and detergents, arts and crafts, tourism products, and small electronic and information products. Shanghai's metropolitan industry witnessed fast development in the next few years (Table 1.6). During the Tenth Five-Year Plan period, Shanghai focused on the building of metropolitan industrial parks in the city center.

Development of the construction industry

As a constituent part of secondary industry, the construction industry covers buildings, civil engineering construction, architectural installation and decoration, among other things. As one of the world's major cities, Shanghai boasts a well-developed construction industry. As early as the Ming and Qing dynasties, Shanghai was known as the “Metropolis of Southeast China.”

The period from the founding of the People's Republic in 1949 through the initiation of opening-up and reform in the late 1970s saw the birth and growth of the construction industry in Shanghai, which played an important role in socialist construction. Huadong Construction Engineering Co., established in November 1949, was the first large state construction company in Shanghai. In the first eight years after 1949, a total investment of RMB 928 million was channeled into Shanghai for the construction of industrial and transport facilities, with 78.7% going to the upgrading of existing facilities, and 21.2% to new projects. The rate of newly added fixed asset was 89.4%, paving the way for future development.

During the “Great Leap Forward” period, when the guiding policy was to treat steel as the mainstay and put tremendous effort into the development of heavy industry, Shanghai's construction industry made considerable progress, with a fair number of steel mills being newly built and remodeled. It also created a record by completing the construction of the Rotary Furnace Workshop of Shanghai Steel No. 5 Mill in just two months. With regard to

chemical industry, Wujing, Wusong, Gaoqiao, and Taopu were opened up as the four chemical bases. The three bases constructed for electromechanical industries were Minhang, Pengpu, and Anting. Light industry, textiles, and transportation also registered some development. The construction of satellite towns was an enormous achievement. Five satellite towns—Minhang, Wujing, Jiading, Anting, and Songjiang—were successively built. In sum, the construction industry contributed considerably to the development of Shanghai's basic industries, changing its industrial structure and layout.

At the beginning of the Cultural Revolution, the production commanding system was paralyzed for a time in enterprises, leading to a significant drop in production levels. Shanghai Construction Engineering Bureau and its subordinate organizations were in the red for three years straight (1967–1969) due to a bleak performance.

From the 1960s to the late 1970s, Shanghai's construction industry implemented a strict planned system. As statutory profit was not calculated, construction enterprises became non-profiting units with the sole goal of realizing state investments. The industry fluctuated with adjustments in national infrastructure construction, and its pace of development was seriously hindered.

After China started opening-up and reform, the State Council announced the development of Pudong in 1990. During his visit to the city in 1992, Deng Xiaoping recommended that Shanghai should aim to “have a new look every year, and make big changes within three years.” This ushered Shanghai's construction industry into a stage of sustainable, fast, and sound development (Figure 1.6).

The rise of tall buildings is one of the remarkable features of Shanghai's fast growing construction industry at this stage. By the end of 1994, Shanghai had a total of more than 1,300 high-rise buildings. High-rise industrial plants were also springing up rapidly. More than 70 companies in electronics, instruments, textiles, clothing, and pharmaceutical sectors had industrial plants of eight to sixteen levels.

After entering the 21st century, Shanghai experienced robust economic growth, creating a conducive environment for Shanghai's construction industry. In the Tenth Five-Year Plan period, investment in Shanghai's municipal projects alone amounted to RMB 81.4 billion. In 2003, the project completion value for Shanghai's construction

enterprises exceeded the benchmark of RMB 100 billion for the first time, reaching RMB 119.58 billion; in 2005, this figure grew to RMB 189.297 billion. China's success in the bid for the 2010 World Expo had brought unlimited opportunities to the city's construction industry. Direct investment in the construction of the Expo Park would amount to US$3 billion; investments in city construction and related industries were estimated to range between US$15 and 30 billion. Clearly Shanghai's construction industry was set to embrace a new round of quick growth.

2.2.2 Development of tertiary industry

Tertiary industry refers to any industrial sectors other than primary and secondary industries, and it is also called the service industry. This section reviews the history of Shanghai's tertiary industry.

Prior to the War Against Japan (1937–1945), Shanghai remained a major trading, financial, and transportation center in South China and the Far East, boasting a well developed tertiary industry. After the founding of the People's Republic in 1949, Shanghai's tertiary

industry experienced a checkered path of development (Figure 1.7). To understand its unique development, it is best to walk through the three stages of this industry.

The First Stage: 1949–1978

After three years of economic recovery, primary, secondary, and tertiary industries accounted for 3.8%, 53.9%, and 42.3% of Shanghai's GNP respectively in 1952. In 1957, the last year of the First Five-Year Plan, the proportion of tertiary industry dropped to 37.1%, yet its growth rate had not slowed down, and reached 11.4% that year. After that, due to the impact of the leftist guiding concept of turning a consumer city into a producer city, many commercial units were disbanded and combined, while numerous employees in tertiary industry were shifted to other industries. Thus, the proportion of tertiary industry in the national economy dropped continually from 21.1% in 1965 to 17.32% in 1972 and just 18.4% in 1978.

The second stage: 1979–early 1990s

After 1978, Shanghai's role in opening-up and reform changed from a backfielder to a forward, and the proportion of its tertiary industry increased continuously from 18.4% in 1978, to 25.1% in 1984, and then to 36.14% in 1992. During this period, vigorous development of tertiary industry became the heart of Shanghai's industrial policy so as to improve the city's attraction and enlarge its regional economic influence. Throughout the 1980s, the proportion of tertiary industry rose, on average, by one percentage point per year, coming close to 30% by the end of the decade. In terms of development areas, the reviving tertiary industry at this stage focused on restoring urban life conveniences, and the daily service sectors achieved allround growth. From the end of the 1980s to the beginning of the 1990s, Shanghai's tertiary industry experienced four to five years of adjustment, and its contribution to GDP stood around 30%.

The third stage: from the early 1990s to the beginning of the 21st century

The 1990s was a period in which Shanghai made strenuous efforts to upgrade its industrial structure. Deng Xiaoping's remarks during his inspection tour of South China, and the development and opening of Pudong, provided a strong boost to the development of Shanghai's tertiary industry. After the implementation of the industrial development strategy of “tertiary, secondary, and primary” in 1992, the proportion of Shanghai's tertiary industry, driven by finance, trade, and real estate sectors, grew by two percentage points per year. From 1990–2000, the added value of Shanghai's service industry obtained an average annual growth of 13.8%, 1.6 percentage points higher than the growth of the city's total output. Its proportion in GDP increased from 31.9% to 50.6%, representing almost two percentage points of annual improvement. This quantitative change triggered off a qualitative shift during 1998–2000. Added value of tertiary industry exceeded secondary industry by 1.2 percentage points in 1999, representing a leap in industrial structure. A second breakthrough in industrial restructuring came in 2000 with the output value of tertiary industry exceeding the sum of primary and secondary industries for the first time.

The fourth stage: from the beginning of this century to today

Shanghai's tertiary industry entered a stage of steady development in the 21st century. Its proportion in GDP even declined in certain

years (Figure 1.8) due in part to a weakened effect of land and financial development in Pudong. With a downward trend of the stock market and a tightened control on land approval and leasing, the industries that propelled Shanghai's economy toward high growth entered a period of steady growth.

In spite of these, the added value of Shanghai's service industry reached RMB 302.711 billion in 2003, still ranking high among China's top major cities. The big market system, centered on such factor markets as capital, currency, intellectual property rights, and human resources, obtained growth and improvement. The city's clustering and regional economic influence further enhanced its capability to serve the whole country. By 2004, through internal adjustments, the proportion of the service industry in GDP dropped to 47.9% (Table 1.7). In the Eleventh Five-Year Plan, the productive service industry will be the focus of Shanghai's industrial development. The plan also identified six key sectors for future development in Shanghai's service industry: finance and insurance, business services, logistics, research and development, creative design, and occupational education.

Shift of Focus in Industrial Development

Viewed from a historical perspective, Shanghai's industries underwent numerous development stages, prioritizing heavy industry before 1990, speeding up the service industry during the 1990s, and shifting to a joint development of advanced manufacturing and the modern service industry in the 21st century. It is a process of continual exploration indispensable to the industrial development of a modern cosmopolis.

The Stage of Prioritizing Heavy and Chemical Industries (Before the 1990s)

Heavy and chemical industries generally refer to the manufacturing of means of production, including such sectors as energy, machinery manufacturing, electronics, chemicals, metallurgy, and building materials. In the course of industrialization, internal industrial structure normally undergoes three stages: heavy industrialization, deep processing, and technological intensification. In the late 1940s, light and textile industries were the dominant industrial sectors with light industry taking up 88.2% of the city's gross industrial output value and heavy industry only 11.8%. Beginning from the First Five-Year Plan, Shanghai focused its industrial investment on heavy industry. By 1965, Shanghai had evolved from a city with light and textile

industries as the mainstay, into a comprehensive industrial base, with a good mixture of light and heavy industries. After opening-up and reform were initiated, and before 1992, Shanghai gave priority to secondary industry, resulting in a constantly accelerating growth rate. Structurally the inclination of investment toward heavy and chemical industries led to a bigger market share for these industries. Shanghai's industrialization, as reflected in the industrial sector's proportion of GDP, had reached the middle and late stages of industrialization by the end of the 1990s (Table 1.8). Shanghai completed its heavy industrialization centered on raw materials before the 1990s. After that, the structural upgrading of Shanghai's industries shifted toward deep processing. Throughout the 1990s, Shanghai's industries reentered a fast growth period, but its growth showed a trend of deceleration (Figure 1.9).

3.2 The Period of Speeding up the Services (1990s)

Currently, almost all metropolises in the world have a strong tertiary industry, which accounts for an average 80% of their GDP and has such prominent features as being light, service-oriented, and internationalized. Along with the adjustment of industrial structure, Shanghai's secondary industry found its proportion decreasing constantly from 75.24% in 1981 to 47.42% in 2002 while the proportion of tertiary industry experienced a steady rise. In the

1990s, Shanghai's economy underwent rapid growth, resulting in a continuous improvement in the service industry (Figure 1.10). In December 1992, Shanghai adjusted its order of priority in industrial development from “secondary, tertiary, and primary” to “tertiary,

secondary, and primary.” Moreover, such sectors as finance, logistics, trade, real estate, tourism, and information services, gradually grew into the mainstay of Shanghai's service industry.

During the Eighth Five-Year Plan, Shanghai focused on fostering a big modern market for the development of its service industry, and made more effort to reform its investment structure. It also gave priority to the pillar industries, and quickened the pace of infrastructure development. Amongst its pillar industries, finance and insurance, real estate, transportation, information, trade, and distribution all witnessed rapid development.

During the Ninth Five-Year Plan period, Shanghai persistently adhered to the concept of “finance and insurance as the mainstay, trade as the pioneer, and transportation, postal, and telecommunications as the foundation” in promoting the all-round development of its tertiary industry. A significant feature of this period was the surge of the real estate sector, with its contribution to the total added value of tertiary industry jumping from 0.5% in 1985 to 24.7% in 1995 (Table 1.9).

By 2000, Shanghai's strategic thinking for the development of its service industry had crystallized to include the following aspects: (1) Informatization should be used as the platform for infrastructure development; (2) Finance and logistics should be the main sectors in driving interactive development; (3) Clustered zones should become the breakthrough point for accommodating the service industry; (4) Large service enterprise groups should

be the leaders in enhancing the industry's competitiveness; and (5) Professionals (human capital) should be mobilized in developing the core advantages of Shanghai's service industry.

3.3 The Period of Common Development for Advanced Manufacturing and Modern Service Industry (the early 21st Century)

The beginning of the 21st century saw the simultaneous development of Shanghai's advanced manufacturing and service industry. While persisting in the integrative development of tertiary, secondary, and primary industries, Shanghai has prioritized the service industry and advanced manufacturing. The proportion of Shanghai's service industry in GDP in terms of added value surpassed that of secondary industry for the first time in 1999, and this proportion exceeded 50% between 2000 and 2003. The development of the manufacturing industry boosted the rapid growth of Shanghai's economy and paved the way for the further development of the service industry.

To develop the advanced manufacturing industry during the Tenth Five-Year Plan at the beginning of the 21st century, six new pillar industries were defined: electronic information equipment, automobiles, petrochemicals and refined chemicals, fine steel, power station and large-scale packaged equipment, and modern biomedicine. The manufacturing industry continued to operate well (Figure 1.11) after its output value broke the record of RMB one trillion. In recent years, the manufacturing industry has been the main driver of Shanghai's economic growth in terms of both absolute figures and total contribution rate.

The service industry represents an inevitable trend of modern economic development. Figures from around the world as well as from China indicate that as people's incomes increase, the demand for service products outstrips that for manufactured products. Worldwide tendencies in industrial development show that service-centered sectors form the mainstay of the industrial structure in developed countries, where both the added value and the number of employees in the service industry make up 70% or more of the market. The service industry has become an important benchmark for

measuring the overall industrial development and competitiveness of a country, region, or city. Shanghai is currently at the late stage of industrialization, moving toward post-industrialization. The sectoral structure of its service industry shows a clustering trend, with finance, logistics, business and trade, real estate, tourism, and information services growing into six pillar sectors. In addition, consumer service sectors, such as education, healthcare, and entertainment, have also made considerable progress. According to the Outline for Boosting Shanghai's Modern Service Industry, Shanghai's service industry must vigorously develop the financial sector through resource clustering and financial innovation, actively develop the cultural service industry by seizing opportunities offered by pilot reform projects, speed up modern logistics and shipping services by expanding and opening air and sea ports, integrate convention, exhibition, and tourism by taking advantage of the 2010 World Expo; and foster and expand information services by implementing urban informatization. Shanghai's service industry should be market-oriented and specialized while striving to upgrade its quality. In the long run, it is inevitable that an industrial structure will take shape in Shanghai that is centered on the service industry.

Shanghai has formulated the following guidelines for the development of its manufacturing industry in the next five years. The city will upgrade its manufacturing industry through new technologies, equipment, and techniques based on enhanced innovation capability. The development of industrial clusters will also be boosted. For the service industry, Shanghai will take informatization as the base, finance, logistics, and culture as the focus, service industry clusters as the breakthrough point, and large service enterprise groups as the vehicle. The city will work hard to pool top-notch talents, strengthen comprehensive integration, and undertake international service outsourcing in order to improve the size and level of the service industry.

Since the beginning of the 21st century, the degree of mutual reliance has increasingly intensified between the manufacturing and service industries. Shanghai's service industry will serve as the gateway for improving its urban functions while its fast growing manufacturing industry will create a tremendous demand for its service industry. A developed service industry will, in turn, provide more solid support for the development of the manufacturing industry. Placing equal emphasis on advanced manufacturing and service industries will become the general policy for Shanghai's future development.

1 Changed to information and communication equipment in 1996.

2 Changed to power station equipment and large electromechanical equipment in 1996.