We spent the day in Pudong, the part of Shanghai I predicted would not happen when I visited the construction site in 1994 (I think). It was bulldozers and plans on paper, plans for an airport, maglev train, 4 or 5 million people, etc. Plans I said would not happen. So when I predict the future, judge accordingly.
The area has a number of government (local, I believe) special economic zones. One of them is devoted to attracting pharmaceutical companies, and we went to a company that produces HIV drugs, apparently to sell to developing countries to give to the poor. From what I could gather, the company gets the rights to make generic versions of branded goods, which allows it to sell them for less. The company also has a joint venture with an American firm for research and development. One key reason was starting salaries; college graduate chemical engineers here earn around $300-$400 a month. I would imagine in the States comparable figures are $5,000. Two college students started the company about 15 years ago with help from “venture capital‚” supplied by the Shanghai government. Apparently, the local governments compete heavily for businesses to locate in their special economic area — there are 5,000 in the country!
The other visit was our best one so far, and one I will attempt to repeat when I take students here — a visit to Shanghai General Motors. One of three GM joint ventures in China, it is the largest, selling about 1 million cars last year. By contrast, our Mitsubishi Motors sold 80,000 cars last year, aided by about 25,000 exports (some, ironically, to China). The contrast extends to the countries — the U.S. market was around 9 million last year; China’s, aided by a government stimulus that reduced the tax on autos from 10 to 5%, grew to 12 million, with GM and Volkswagen vying for leadership in the market (with about 13% of the sales). The Director of Global Supply Chain for the joint venture told us that their sales jumped over 60% from 2008-09, and it had a hard time keeping up with demand.
GM Shanghai has a joint venture partner in Shanghai Automotive Industrial Corporation; GM provides products and process (manufacturing techniques borrowed from Toyota), SAIC provides access to market. GM sells Chevy, Buick, and Cadillac labels in China, with models essentially the same as those in the United States. The cars tend to be a little smaller (though GM doesn’t have or intend to have a “small” car), with smaller engines than in the U.S. because the taxes escalate based on engine size. Our guide thinks the Chinese are aspirational (and Shanghai stores — at least in our neighborhood, which is on Nanjing lu, the Michigan Avenue of Shanghai — or at least one Michigan Avenue — reinforces that picture of conspicuous consumption); he noted that Buick was an easier sell than the other brands because the Chinese emperor Pu-yi (the last emperor) drove a Buick (which may account for the popularity of the Regal). I think we could have talked with the Director for far more than two hours, but the need to tour the factory while the shift was still there (two shifts, 10.5 hours a day) curtailed what was a fascinating question and answer. The shops are union, but the unions are government-sponsored and, he said, far less confrontational than the UAW at home. He observed that he could have a work day on Sunday without begging or yelling — and without paying triple overtime. Needless to say, Shanghai GM is a very profitable unit in the GM empire. He touched lightly on one of the major challenges — that GM’s joint venture partner, SAIC, is beginning to produce a car of its own that it hopes eventually to compete with the GM models, and export to the United States.
We leave tomorrow for Hangzhou, about 3 hours south of here, and I’ll be sorry to leave Shanghai. It’s cool here, but the snow you may have seen in Beijing should help point out that China is a large country. Much of the development is along the coast, and a lot of that is in the Shanghai area. The Director noted as you go west in China, the sales of GM cars shift from Buick to Chevy, and in rural areas to a small truck GM is making with another partner.
Stay warm and be safe, and I’ll be in touch from Hangzhou, which, unlike Shanghai, was one of the ancient capitals of this country.