Chapter 3
Development of Shanghai's Modern Service Industry

1. Status Quo and Features

During the Ninth and Tenth Five-Year Plan periods, there was general growth in Shanghai's tertiary industry. At the end of the Ninth Five-Year Plan, the tertiary industry's output accounted for over 50% of the city's GDP. During the Tenth Five-Year Plan period, the figure once dived below 50% due to an impact from the SARS outbreak, but rose to 50.2% by the end of the period (see Figure 3.1).

1.1 Financial and Insurance Services

After opening-up and reforms began in 1978, China has piloted many of its financial reforms in Shanghai, particularly in the 1990s. The tremendous changes and growing competitive strength of Shanghai's financial industry can be seen in the new banking street on the Bund and the modern Lujiazui Finance and Trade Zone in Pudong. In 2005, Shanghai's financial industry strove to become more market-oriented, and further progress was made in building a strong financial center. The industry achieved an incremental output value of RMB 68.987 billion, representing a growth of 11.6% over the previous year.

Accelerated clustering of financial institutions

In 2005, Shanghai had 73 newly established financial institutions, of which 11 were in banking, 59 in insurance, and three in securities. By the end of 2005, the total number of financial institutions reached 527, with 130 in banking, 227 in insurance, and 91 in securities. Foreign-invested operating financial institutions totaled 123, of which 14 were established in 2005. The 84 foreign banks and financial companies operating in Shanghai had a total asset of US$48.43 billion; 65 of these were granted RMB business licenses, and had a total RMB asset of RMB 114.455 billion. Twenty-nine foreign banks designated their Shanghai offices as the leading reporting branches for business operations in China. Since the second head office of the Central Bank of China was set up in Shanghai, the city has been striving to introduce RMB open market operations or to provide a window for RMB open market operations in Shanghai. At the same time, efforts have also been made to attract financial institutions, in particular state-owned commercial banks, nationwide securities, futures, and insurance businesses, to set up their head offices (or their intensive business centers, operation centers, or functional centers) in Shanghai.

Continuous boosting of financial service functions

At the end of 2005, Shanghai's financial institutions had a savings deposit balance of RMB 2.33 trillion, with an annual increase of RMB 314.28 billion, as well as an outstanding balance of loans of RMB 1.67 trillion, with an annual increase of RMB 178.59 billion. The outstanding balance of individual consumption loans was RMB 281.416 billion, with a yearly increase of RMB 14.15 billion. Of these loans, RMB 264.49 billion went to housing mortgages, up by RMB 19.94 billion. In 2005, the cash income of financial institutions amounted to RMB 2.12 trillion, and cash expenditure hit RMB 2.17 trillion. With income against expenditure, the net currency issuance was RMB 50.565 billion. The NPL ratio of Chinese banks in Shanghai was 3.39%, down 0.58 percentage points from the beginning of the year.

Quickened innovation and steady development in the financial factor market

In 2005, Shanghai Stock Exchange's total turnover was RMB 4.97 trillion, down 35.2% from the previous year. Out of the total turnover, RMB 1.92 trillion went to equity, decreasing 27.3%, RMB 2.81 trillion went to bonds, going down 43.4%, and RMB 15.58 billion went to funds, falling 37.4%. The types of securities on the securities market were on constant rise. Throughout 2005, the total listings stood at 1,069, an increase of 73 from the previous year, with stock listings dropping by three to 878. A total of RMB 29.97 billion was raised through the capital market, down 49.1 % from 2004. From this total, RMB 2.855 billion was raised from new issues, dropping 88% from the previous year. Reissued shares (including secondary offerings, right issue, and displacement of state-owned shares) raised RMB 27.12 billion, an increase of 23.5% from 2004. By the end of 2005, 125 companies had completed the reform of non-tradable shares, accounting for 14.2% of the total number of listed companies on the Shanghai Stock Exchange. The city worked to stimulate innovation in the financial industry. New products, such as the Shanghai-Shenzhen 300 Index, forward bonds, and short-term corporate bonds, were introduced. Turnover of the interbank lending market stood at RMB 23.21 trillion, an increase of 73.3% from the previous year. The futures market had a turnover of 67.57 million board lots, decreasing 16.7%, and a total transaction of RMB 6.54 trillion, down by 22.4%. Trading on the gold market was brisk, with a yearly transaction of RMB 116.843 billion, increasing 46.7%. The diamond market figure was US$410 million, an increase of 11.4%over the previous year.

Sound development in the insurance industry

By the end of 2005, Shanghai had a total of 70 insurance companies, 12 more than in 2004, and 157 insurance agencies, of which 47 were new that year. The annual income from insurance premiums was RMB 33.36, up 8.8% from the previous year. Of this sum, RMB 8.78 billion was from property insurance, increasing by 18.2%, and RMB 24.57 billion was from life insurance, increasing by 5.8%. Of the total premium income, RMB 27.5 billion went to Chinese insurance companies, increasing by 5.6%, and RMB 5.822 billion to foreign insurance companies, increasing by 27.1%. The total settlement from the insurance industry amounted to RMB 8.746 billion, an increase of 23.2% over the previous year, with RMB 4.726 billion contributed by property insurance, an increase of 38.8%, and RMB 4.02 billion from life insurance, an increase of 8.9%.

Enhanced competitiveness for the financial industry

The clustering effect and competitiveness of Shanghai's financial industry have proved not only in attracting foreign financial institutions, but also in securing non-financial organizations from all over China. Over more than ten years of hard work, Shanghai has developed the framework necessary to becoming the country's financial center. An effective financial service system has emerged, and finance has become one of Shanghai's pillar industries. Shanghai's key position in China's financial business and the city's standardized operations reflect the development level of Shanghai's financial system and institutions.

The main competitive edge of Shanghai's financial industry lies in the high quality of its human resources, the presence of a large number of multinationals, and its role as the base for most of China's major financial markets. Other advantages include relatively low business costs, preferential policies, and even more powerful competitors.

In the face of intense international and domestic competition, Shanghai plans to develop unique commodity futures so as to assure the city's reputation as an innovative international financial center. The city's financial center is constantly on the lookout for strategic innovations to ensure that its influence and competitive edge remain strong both at home and abroad. Shanghai is taking well-planned steps to enhance its development of new commodity futures, and to establish a commodity futures system, focusing on metals, precious metals, energy, and grain. This will make the city an important pricing and trading center domestically and globally, and pave the way for the introduction of financial derivatives in the future.

1.2 Logistics Services

Shanghai's modern logistics services have been developing rapidly since opening-up and reforms began. During the Tenth Five-Year Plan period (2000–2005), modern logistics became one of the pillars of Shanghai's modern service industry.

In 2005, Shanghai's total freight transportation was 687 million tons, an increase of 8.8% over the previous year. Its port handled 443 million tons of cargo, up 16.9%, making Shanghai the world's largest cargo port. A total of 18.08 million TEUs were handled, an increase of 24.3% over the previous year, which made Shanghai the world's third largest container port. Its airfreight throughput reached 2.21 million tons, increasing by 13.9%, ranking Shanghai No. 1 in China. Shanghai's logistics industry is expected to reach a total output value of RMB 255 billion in 2005, increasing by about 18% from the previous year. The industry's projected value added is RMB 118.9 billion, up about 15%, and accounting for 13% of Shanghai's GDP and 25% of the service industry's value added, 1 and 0.8 percentage points higher respectively than the previous year.

The modern mode of logistics management, characterized by IT application and a supply chain management, has been adopted in such industries as steel, automobile, pharmaceuticals, chemicals, and chain stores. Baosteel has signed a “Strategic Cooperation Agreement” with China Shipping, and an “Integrated Management Cooperation Agreement” with FAW Group and Sumitomo. Through such agreements, the group's position as a strategic supplier has been reinforced and enhanced. Large commodity circulation enterprises, such as Brilliance Group and Nonggongshang Supermarket, have established logistics and distribution networks to support the development of chain stores as their core business. The integration of commercial, commodity, and information flows has prompted the formation of the modern logistics and distribution networks in support of the pillar industries and chain stores in Shanghai.

During the Tenth Five-Year Plan period, Shanghai aimed to build four logistics parks. Phase I of the Yangshan Deep Water Port has been successfully completed, and the Yangshan Bonded Port is now in operation. The Lingang International Logistics Park has actively attracted world-famous logistics companies, such as Prologis and Caterpillar, as well as large domestic logistics enterprises. Waigaoqiao, Airport, and Northwest Comprehensive Logistics Parks have gradually improved their service functions. Thirty-eight logistic projects with investments from 15 well-known domestic and foreign logistics companies have settled down in the Waigaoqiao Bonded Logistics Park. A new round of planning and construction has begun for Pudong Airport Logistics Park. The Northwest Comprehensive Logistics Park has already attracted 59 domestic and foreign logistics companies, comprising 60% of China's pharmaceutical logistics and distribution, and 75% of Shanghai's retail logistics and delivery.

Also during the Tenth Five-Year Plan period, Shanghai's state-owned logistics enterprises, such as the International Port Authority, J.Y. Group, Orient International, Jihaijieya, and Brilliance Modern, were restructured and developed. Global logistics enterprises such as Federal Express, TNT, Maersk, and UPS, set up modern logistics services in Shanghai. A considerable number of private-owned domestic logistics enterprises, such as Beifang, Hongxin, Yuancheng, and Jiaji, focused on supply chain management and IT-based logistics, and formed a unique mode of logistics services, providing outsourced logistics services to trading firms as well as wholly foreign-invested or Sino-foreign joint venture manufacturing enterprises. A number of joint venture logistics enterprises with modern logistics management experience and technology grew rapidly, providing comprehensive logistics services for advanced manufacturing, such as ANJI-TNT. In sum, Shanghai has established a common development platform for enterprises of different ownerships and those providing specialized logistics services.

It is true that Shanghai's modern logistics services have made great progress. However, given the fast increasing demand for such services generated by the city's sustained and rapid economic and social development, the industry still needs to improve in such aspects as the structural conflict between supply and demand, the inefficient use of logistics facilities, and a lack of qualified professionals.

Being an international shipping center is a key asset for any world-class city. Shanghai set the target to become an international shipping center years ago and adopted many effective measures in that regard. The essential conditions to build an international shipping center are: a solid economic foundation, sufficient supply for import and export and container transport, a developed and sound shipping market, an advantageous geographical location with ports near international shipping lines and supported by a highly developed river shipping system, deep water terminals and good quality terminal facilities suitable for berthing international ocean shipping vessels, and first-class comprehensive services. After nearly 200 years of development, Shanghai Port is now evolving from a second-generation port (value addition through processing) into a third-generation port (comprehensive resource allocation). It is qualified to become an international shipping center.

Firstly, the port handles nearly 90% of the goods for Shanghai's foreign trade. The port is not just a place for loading, unloading and transfers, but also the platform for logistics, and a center for the distribution of imports and exports. Official analysis shows that 90% of Shanghai's logistics falls into the category of port logistics.

Secondly, Shanghai Port has achieved sustained growth in its cargo throughput, and has shown a sharp increase in container handling. Accordingly, its world ranking has risen quickly. Total cargo throughput stood at 220 million tons in 2001, and rose to 260 million tons in 2002, which took Shanghai Port to third place worldwide in 2002. In 2004, cargo handling amounted to 379 million tons, up 19.8% over the previous year, making it the second busiest port in the world. Container handling for the same year reached 14.55 million TEUs, representing a net increase of 3.272 million TEUs, or 29% growth over the previous year. By the end of 2004, Shanghai port had 19 international container shipping lines connected to 500 ports in 200 countries and regions in the world. The number of container liners docking at Shanghai Port each month reached 1,716, up 222 from the previous year. In 2005, Phase I of Yangshan Deep Water Port was completed and put into operation, marking another step toward elevating Shanghai's status as an international shipping center. That year, Shanghai Port achieved an annual cargo throughput of 443 million tons, rising 16.9% from the previous year, and making it the world's largest port. Annual container handling reached 180.84 TEUs, representing a net increase of 3.53 million TEUs, or a growth of 24.3%, assuring Shanghai a place among the world's top three ports.

Thirdly, Shanghai Port has improved its infrastructure to comply with the requirements of international shipping. A port structure has emerged in which main hub terminals play a key role, supplemented by vital regional terminals and small terminals. The Shanghai Shipping Exchange has been set up, and deep water dredging has been conducted at the Yangtze estuary. This has greatly improved the port's capability in terms of vessel tonnage and container transfer systems. Large specialized container terminals, such as Waigaoqiao, are now ready for use. The completion of the first phase of Yangshan Deep Water Port has considerably increased the port's navigability and efficiency. With improved efficiency in loading and unloading facilities and customs clearance, the vessel berth time has been dramatically reduced.

1.3 Business Services

By the end of 2004, there were a total of 19,000 providers of business services in Shanghai, accounting for 15% of the producer service industry. The business service sector had a work force of 480,000, accounting for 26% of the producer service industry, and with an annual main business income of RMB 20.74 billion, accounting for 11%.

Within the business services sector, legal, accounting, auditing, and taxation services are developing very rapidly. In 2004, a total of over 1,300 institutions employing 24,000 people were engaged in such services. However, these made up only a very small percentage of the producer services industry, and their level of service remained low. In addition, Shanghai's conference and exhibition service industry is also fast developing, and already has 1500 companies employing 13,000 people.

Research and development services

By the end of 2004, there were 10,000 R&D institutions in Shanghai, involving a workforce of 160,000, a total asset of RMB 63 billion, and major business revenue of RMB 21.5 billion. In 2004, the number of institutions and the size of the workforce made up 8% and 8.7% respectively of the producer services industry. The efficient utilization of innovation resources in science and technology remains to be improved.

Design, creative, and consulting services

At the end of 2004, there were nearly 30,000 units in Shanghai, providing design and creative services to the manufacturing industry, with a workforce of 340,000, a total asset of RMB 156.6 billion, and annual major business revenue of RMB 87.3 billion.

Surveying and consulting services developed rapidly and had great market potential. In the same year, there were more than 14,000 agencies engaged in the surveying and consulting business, representing 47.7% of the total for design and creative services. In addition, a number of well-known domestic and foreign consulting firms set up offices in Shanghai. The software industry has also grown very quickly. Since 2001, Shanghai's software industry has sustained an annual growth of more than 50%. The advertising industry also enjoyed rapid development, and new advertisement media emerged one after another. The concentration of the creative industry accelerated, with a total of 36 firms in operation in Shanghai.

Occupational education services

At the end of 2004, there were 1,600 occupational education and training service institutions in Shanghai, with a workforce of 57,000. Occupational skill training is at the core of vocational education services. By the end of that year, there were 1,100 institutions engaged in occupational skills training in Shanghai, accounting for 68% of vocational education services. Non-governmental institutions became the main providers of occupational education.

Exhibition services

Management Methods for the Exhibition Industry of Shanghai was released on March 15, 2005 and came into effect on May 1. In 2005, Shanghai hosted a total of 276 international exhibitions covering 14 categories and 77 subcategories such as automobiles, machine manufacturing, electronic engineering, textiles, and garments. These exhibitions covered a total space of 3.76 million square meters, with an average of 13,600 square meters per exhibition. The number of exhibitions held in 2005 was approximately the same as in 2004, yet the total and average space increased by a record high of 23% and 26% respectively.

1.4 Commercial and Trade Services

In 2005, Shanghai's total sales volume reached RMB 1.29 trillion, up 15% over 2004 and 3.7 percentage points higher than that of 2004. The total sales realized through wholesaling came to RMB 1.03 trillion, an increase of 16.3% over the previous year, representing 79.82% of total sales for the city. Of this figure, RMB 613.6 97 billion came from wholesalers and retailers, accounting for 47.41%of total merchandise sales.

In 2005, Shanghai's total goods purchase stood at RMB 1.10 trillion, representing an increase of 13.5% over the previous year, and 3.5% higher than the growth rate in the previous year. Forty-two percent, or RMB 463.806 billion-worth of goods was purchased from wholesalers and retailers.

Wholesale and retail

In 2005, fixed asset investment in wholesale businesses increased threefold over the previous year. In the same year, trading was brisk in commodity wholesale markets: there were a total of 1053 commodity trading markets, with an annual trade volume of RMB 254.5 billion, an increase of 8.3% over the previous year.

In the retail business, Shanghai saw a sharp rise in the number of supermarkets in 2005. By the end of the year, there were 5,237 supermarkets in the city, with 2,315 of them located in urban districts and 2,922 in the outskirts, up 28.4% and 45.5% respectively over the previous year.

In 2005, there were 262 large comprehensive supermarkets in Shanghai, with 112 within the city and 150 beyond it, an increase of 7.7% and 4.2% respectively over the previous year. At present, Shanghai's large supermarkets are concentrated in the city center: 23 within the inner ring, 60 between the inner and outer rings, and 43 outside the outer ring. Backed by sufficient capital and rich operational experience, foreign-invested enterprises are opening new stores at a faster rate. Foreign-invested supermarkets accounted for more than 50% of all supermarkets opened in 2005. By the end of the year, there were 67 large foreign-invested supermarkets in urban areas, making up 60% of the total number of supermarkets, and their retail sales accounted for 76%.

In 2005, there were 5,528 convenience stores in Shanghai, with 3,894 located within the city, and 1,634 in outer areas, a decrease of 6.4% for the city, and an increase of 32.2% for the outer areas. This divergence suggests that the conditions have changed for the opening up of convenience store markets in Shanghai.

Shanghai's general merchandise industry continued to be China's leader in 2005. Of China's top 100 department stores with a retail volume exceeding RMB 100 million, 20 were located in Shanghai. Two of these (Number One Yaohan and New World City) were amongst China's top ten. The top 50 included Xuhui Store of the Orient Department Store, Huijin Department Store, Number One Department Store, Jiuhai Parkson, Xuhui Store of the Pacific Department Store, Landmark Square, Nandong Store of the Orient Department Store, Huaihai Store of the Pacific Department Store, and Hongqiao Friendship Department Store.

In 2005, there were 3,927 specialized chain stores in Shanghai. These stores had an annual retail turnover of RMB 18.7 billion, with RMB 14.72 billion contributed by appliances stores, and RMB 3.43 billion by building materials stores.

In the same year, electrical appliances and communication products became more concentrated in large, specialized stores. Most department stores and large supermarkets shied away from the large appliances business. This gave large specialized stores an edge in the electrical appliances market. In 2005, retail sales for Yongle, Gome, Suning were RMB 9.93 billion, 2.47 billion, and 2.64 billion respectively, and accounting together for 90% of the total for specialized appliances stores.

At the end of 2005, there were 37 shopping malls in operation in Shanghai, totaling 3,559,000 square meters in floor space with an average of 97,000 square meters per mall. Sixteen of these had a floor space of over 100,000 square meters. A further 26 shopping malls were under construction, with a total floor space of 4,006,000 square meters, and an average of 154,100 square meters.

Insight 3-1

The Rise of Lianhua Supermarket

In May 1991, the first Lianhua supermarket was set up in Shanghai. Today, there is one Lianhua chain store for every four square kilometers in the city.

In 1996, Lianhua supermarket opened its very first store outside Shanghai. Today, its blue-and-yellow logo can be seen across 80 cities in China's ten provinces. Starting out with a single 800-square-meter store, Lianhua has grown into a chain of 3,000 stores in 20 provinces and municipalities, becoming China's biggest chain retailer.

At the beginning of the 1990s, as one of China's pilot cities to open up the retail industry, Shanghai set up the country's first Sino-foreign joint-venture department store. Soon afterwards, a number of global chain store giants, such as Carrefour and Metro, opened stores in Shanghai. With their advantages in capital and operational experience, these commercial giants posed a serious challenge to state-owned enterprises, which were still struggling with structural transformation. At the time, the five-year-old Shanghai Lianhua business was still below the breakeven point, and was suffering from a loss of over RMB 5 million.

Should the company quit or stay in the game? In 1996, Lianhua's newly appointed leadership faced this hard choice. The management realized that shopping space meant a lot in market competition and therefore they made a decision to implement a plan for large-scale business expansion.

Lianhua set up joint ventures in Shanghai's suburban counties, and opened franchises along the Yangtze commerce and trade corridor. Through domestic joint ventures, the company joined forces with such major players as Shanghai's Shanbei Supermarket and Xinxin Supermarket. The company also worked with Shanghai Industry (Group) Co. Ltd. and Mitsubishi to co-establish Shanghai Lianhua Supermarket Co. Ltd. In the same year, the number of Lianhua chain stores jumped from 41 to 108, and the number of newly opened stores within that single year was 1.5 times the total for the previous five years. The long-standing losses gave way to a bumper profit of more than RMB 100,000 in the same year.

Over the past few years, Lianhua has been leveraging its flexible and diversified capital operations to expand its business scale. Through acquisition and restructuring of dozens of small-and medium-sized companies, such as Baijia Convenience Store, Yongchang Supermarket, and Weimin Supermarket, the company has acquired more than 100 supermarket stores. Through restructuring the assets of such outside-Shanghai supermarkets as Jinlongwanjiafu in Hangzhou and Baihui in Suzhou, Lianhua has set up many new stores in Jiangsu and Zhejiang Provinces. Moreover, its franchise operation has put hundreds of diverse supermarkets under its logo.

Riding on its post-expansion success, Lianhua is now striving to shore up its core competitive strength, and has achieved continuous breakthroughs in strategic, operational, management, and technical innovation. Lianhua has established a nationwide commodity purchase network and China's first large-scale, intelligent distribution center. Advanced computer information systems have been deployed in all Lianhua's stores, ensuring automated commercial management for its wide network of stores.

Source: based on a Xinhua news story at http://news.xinhuanet.com/fortune/2002-01/16/content_240489.htm

Catering services

In 2005, Shanghai's catering industry achieved a turnover of RMB 35.13 billion, increasing 25.4% from 2004, and accounting for 11.78% of the city's total retail sales of consumer goods for the year.

According to the 2005 statistical data released by the Shanghai Food and Drug Supervision Bureau, there were 32,768 catering entities with sanitary permits, an increase of 6.15% over the previous year, and with a workforce of about 500,000. The industry also saw a continuous expansion of independent restaurants and chain restaurant operations into communities and luxury business zones.

The data provided by the Shanghai Catering Industry Association on its 89 members showed that their turnover was RMB 9.62 billion in 2005, an increase of 11.11% over the previous year. Fifty-three of these catering companies were full catering providers, with a turnover of RMB 5.313 billion, an increase of 11.1%; twenty-five served recreational meals and fast food, with a turnover of RMB 2.457 billion, an increase of 10.08%; and 11 were guest house catering businesses, with a sales volume of RMB 1.85 billion, up 12.94%.

A huge number of domestic and foreign catering operators have established businesses in Shanghai. Market competition has created a tremendous variety of flavors, ranging from various Chinese regional cuisines to exotic foods from numerous countries. Informal catering, especially that offered by Hong Kong- and Macao-style tea restaurants, is growing rapidly. Serving a wide range of food and beverages, and with long opening hours, these establishments are very popular with white-collar customers.

There is increasing diversification in the catering business. The main styles of catering in Shanghai include: a range of mainstream formal meals (Chinese, Western, Shanghai, and various regional flavors, including both local and foreign ethnic cuisines at different service standards), fast food (Western, Chinese, and Dim Sum), food delivery services (supplying services such as workplace meals, student meals, family meals, and breakfast, etc.), leisure and culture-related catering (including bars, cafés, tea houses, 24-hour recreational food services), auxiliary catering services (including bath house dining, art dining, musical dining, bakeries, and self-service food and drinks outlets), and catering services targeted at certain consumer groups (such as children, club members, and office people). Owners and operators in the catering industry are attempting to modernize and add a personal touch to their businesses in order to satisfy the needs of different consumers and contribute to the market's overall success.

The consumption level of catered food is gradually rising. According to sample surveys, the consumption of food and drinks for recreation and relaxation shows a growing trend. Per-capita consumption at formal meals has gone up from RMB 50 to RMB 75. This rise in consumption has given an impetus to the development of catering businesses, and has been a driving force for the development of related industries.

In the future Shanghai's catering industry will work toward brand building, chain operation, and individualized services. The unique Shanghainese cuisine will continue while other cuisines, either Chinese or Western, will be introduced. Established catering enterprises such as Xiao Nan Guo, Mei Yuan Cun, Shanghai Families, and Heji Restaurant, will accelerate their chain business and set up purchase and delivery centers. The catering industry will also draw on Shanghai's historical and cultural traditions to enrich Shanghai's catering culture. Such enterprises as Lao Yang Fang and Shi Ku will become the calling cards of Shanghai's catering industry.

Foreign-invested retail and catering enterprises

In 2005, Shanghai approved 986 foreign-invested retail and wholesale projects, an increase of 35.1% over the previous year, and accounting for 24.1% of the annual total for all foreign-invested projects. These projects involved a contractual foreign capital of US$1.207 billion, increasing by 124.37% over the previous year, and accounting for 8.37% of the year's total for all foreign-invested projects. A total of 136 foreign-invested accommodation and catering projects were approved, up 16.24%, involving a total contractual foreign investment of US$145 million, up 143%.

1.5 Tourism Services

In 2005, Shanghai's tourism industry overcame the negative impact of several natural disasters, such as bird flu, typhoons, and frequent rains, and continued to grow steadily. The industry achieved a revenue of RMB 160.426 billion, an increase of 9.0% over the previous year. The value added from tourism made up about 6.4%of the city's GDP.

The development of Shanghai's tourism industry in 2005 was marked by the following characteristics: Firstly, there was a rapid growth in inbound tourism. The total annual number of inbound tourists was 5.7135 million, an increase of 16.1%. Of these, 4.44 million were overnight tourists, an increase of 15.3%. Foreign exchange earned from tourism amounted to US$3.61 billion, an increase of 16%. Secondly, the growing momentum of outbound tourism was maintained. The number of outbound tourists exceeded 510,000, up 3%. Thirdly, domestic tourism developed stably. In the entire year, the city received 90.12 million domestic tourists, generating revenue of RMB 130.84 billion, up 6.0% and 7.6% respectively. Fourthly, travel service enterprises showed a healthy business growth. Turnovers of tourist restaurants rose by about 10%, and travel agencies went up more than 20%. Fifthly, the scale of the tourism industry in general continued to grow, with an improved receiving capacity. There were a total of 354 star-rated hotels, 52 international travel agencies, and 711 domestic travel agencies, offering over 150 tour routes.

2. Distribution of Shanghai's Modern Service Industry

2.1 Financial and Trade Zone

Shanghai's financial and trade industry is mainly located in the Bund area and Lujiazui in Pudong. The Lujiazui financial and trade zone is situated in Shanghai's Pudong area, directly across the river from the Bund in Puxi, and encircled by the Huangpu River and the Inner Ring. Covering an area of 28 square kilometers, the zone boasts 130 high-grade office buildings, with an intelligent office space of 2.3 million square meters and an average occupancy rate of 92.5%. In addition, another 1,210,000 square meters of office space is under construction, in the core area of Lujiazui.

Lujiazui has become a place of concentration for financial institutions. At the end of 2005, Pudong was home to more than 360 domestic and foreign financial institutions (120 domestic and over 230 foreign), with the majority located in Lujiazui. Lujiazui currently boasts nation-level factors markets spearheaded by securities, futures, and diamonds, and a network of financial institutions such as banks, insurance, securities, financial, fund, and financial leasing companies. Nearly 300 prominent domestic and foreign groups and enterprises, such as Siemens, Cimic, Alcatel, Thomson, and Baosteel, have established offices in Lujiazui. The Shanghai International Convention Center and the Grand Hyatt, which hosted the 1999 Fortune Global Forum, the Shangri-la Hotel, the Hotel Inter-Continental Pudong, among others, provide the zone with superb conference, exhibition, accommodation, and food and beverage facilities.

2.2 Logistics Parks

During the Tenth Five-Year Plan period, Shanghai developed three logistics centers in Waigaoqiao, Pudong Airport, and the Northwest.

Apart from these, the Shanghai Wusong International Logistics Park, the Shanghai Baihe Commercial and Trade Logistics Park, and the Yangshan Port International Logistics Park are also currently planned or under construction (See Table 3.1).

In 2005, the total amount of goods handled by Shanghai's modern logistics sector was 678 million tons, an increase of 8.8% over the previous year. Of this amount, the port handled 443 million tons, an increase of 16.9% over the previous year, making Shanghai the world's largest port. Container handling was 18.084 million TEUs, an increase of 24.3%, making it the third largest container port globally. Air cargo amounted to 2.21 million tons, an increase of 13.9 %, ranking Shanghai No.1 in China.

2.3 Key Commercial Districts

The word “commercial” here refers to commodity retail, wholesale, and services with physical business locations. They include catering, tourism, leisure, culture and recreation, household services, design, among others.

In the mid 1990s, Shanghai developed a commercial layout of “three roads and four cities.” The “three roads” refer to Nanjing Road, Huaihai Road, and Sichuan Road. The “four cities” are Xujiahui Commercial City, the New Railroad Station Commercial City, Pudong New Shanghai Commercial City, and Yuyuan Commercial City. After more than ten years of development Shanghai has evolved a layout that is centered on the four-street and four-city municipal-level commercial centers, and supplemented by regional and residential commercial centers (see Figure 3.2). It has also accelerated commercial development in the suburban areas.