Shanghai and Beijing battle it out
Financial Times
By Geoff Dyer
Published: November 10 2006 18:11

Time Out has an English-language edition in China that provides
listings for the expatriate community. The latest edition poses a stark
question on the front cover: Beijing or Shanghai?

Many countries have two cities that engage in a fierce rivalry over
which is the more modern and interesting. In China, the foreign
residents are also only too happy to take part in the debate. I picked
up the magazine this week at a hotel in Beijing, where I was visiting
from Shanghai on a trip that has made me rethink some assumptions about
China’s top two cities.

For a start, I reckon it is Beijing rather than Shanghai that is
undergoing the bigger building boom. The Shanghai skyline was
transformed in the 1990s, and the city is constructing the tallest
building in the world. But Beijing is currently putting more of those
huge construction cranes to use. Entire blocks of buildings that I
visited only a few months ago have been levelled to make way for new
offices and flats, most of them in districts of the city that will have
little to do with the 2008 Olympics.

Shanghai likes to boast about its greater openness to international
influences. Yet Beijing also seems to be teeming with new Tapas bars
and shopping malls lined with the latest Italian fashions. And it is
Beijing, rather than trend-obsessed Shanghai, that has the better
modern art on show.

The real surprise for a visitor to Beijing from Shanghai, however, is
the number of financial institutions with a presence in the city.
Shanghai is the financial capital of the Chinese mainland, or so the
city’s leaders would like to think. It is home to the main stock
exchange, and is the only city with a shot at competing with Hong Kong
to be the international financial bridgehead for China’s soar-ahead
economy.

Yet Beijing’s planners do not seem to be following the same playbook.
In the late 1990s, the city renamed one of its nondescript
thoroughfares Financial Street. The initial reaction was a good deal of
derision. But judging by a brief visit, the area is beginning to take
shape. I had thought all those gleaming skyscrapers in Shanghai’s
Pudong district were built specifically to house American investment
bankers.

Yet in one building alone on Beijing’s Financial Street, Goldman
Sachs, UBS and JPMorgan have all recently installed their China
headquarters (though their staff complain they have few places to go
for lunch and there is not a Starbucks in sight).

While Shanghai is getting the new financial futures exchange that the
government is setting up, Beijing retains the real engines of the
country’s financial system: the big four commercial banks. China
Construction Bank, the first of the four to list overseas, has its
headquarters on Financial Street, just along from the stock market and
insurance regulators.

More than local pride is at stake here. There is a symbolism that is
important for investors to understand. If foreign investment banks are
hugging close to the seats of government rather than following the
commercial flows in Shanghai, it says something about the way financial
markets work in China. The stock market may be based in Shanghai, but
professional investors are divided over where is the best place to
predict what will happen to share prices.

For some institutions, the role of the government in the economy means
that Beijing is the ideal looking-post. The only way to pick stocks,
they say, is to keep an ear close to the ground for new directives
coming out of the ministries, because it is these, rather than cash
flow or valuations, that move the market. They point out that the lion’
s share of listed companies in China are state-owned, which can make
them even more susceptible to changes in political mood.

To be fair, Shanghai has its own army of institutional investors who
believe that the stock market is becoming transparent enough for them
to use the sort of valuation methodologies they have developed for
other markets. But none disputes the importance of good government
contacts.

For any retail investor who has seen the mainland market soar this
year and is beginning to look at Chinese stocks for the first time,
Beijing’s Financial Street contains a critical message. In spite of
all the reforms that have been introduced in the past two decades and
all the giddy statistics about the potential growth in the country’s
economy, politics is still a hugely important factor in Chinese
business.

Copyright The Financial Times Limited 2006