Shanghai's Industry Policies and Associations

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Chapter 4
Shanghai's Industry Policies and Associations

I ndustry policies refer to the various measures formulated by a country or a region in order to plan for, intervene in, and guide the formation and development of its industries. Industry policy is a type of policy that focuses on orientation, structure, and supply management.

Industry policies mainly include those on industrial structure, industrial organization, and industrial distribution. Industrial structure policy aims to optimize and streamline industrial structure. Its functions include pushing forward the evolution of industrial structure according to the rules of industrial development, as well as planning for and promoting the development of leading industries. Industrial organization policy refers to the policy which regulates relationships between enterprises within the industry. The policy comprises two types of contradictory yet interdependent policies: one type encourages competition and restricts monopoly, while the other promotes capital centralization. Industrial distribution policy facilitates the efficient, spatial distribution of economic resources.

On January 20, 2006, Shanghai Municipality approved the Outline of the Eleventh Five-Year Plan for Shanghai's National Economic and Social Development (2006–2010) (hereinafter referred to as the Eleventh Five-Year Plan). The outline points out that Shanghai will be developed into an international economic, financial, trade, and shipping center by 2020. Taking this plan into consideration, the objective for the next five years will be to form the basic framework, and lay a solid foundation for Shanghai's sustained development from 2011 to 2020. The specific goals are as follows:

  • While optimizing industrial structure, raising economic performance, and reducing consumption, Shanghai is expected to register an average annual economic growth of more than 9%, and a GDP of RMB 1.5 trillion by 2010. The city's industrial structure will gradually develop, with a service economy as the mainstay, and achieve simultaneous growth in local fiscal income and the national economy.
  • Shanghai will significantly improve resource utilization, and reduce energy consumption per unit of GDP by 20%, as compared to the figure at the end of the Tenth Five-Year Plan. The city will seek to transform itself into an eco-friendly city, with environmental protection investment maintained at about 3% of the city's GDP.
  • Shanghai will establish a basic innovative system, and its R&D expenditure will account for more than 2.8% of the city's GDP. Contributions to economic growth by scientific and technological progress will reach about 65%. A number of key enterprises with independent intellectual property rights, famous brands, and global competitiveness, will be founded. Comprehensive reform in education will be further intensified, and the skills of the work force will be further improved.
  • Shanghai will speed up its formation of a diversified financial market and institutional network. The city works toward a globally influential financial center, building on its established role as a domestic financial center. It will form a development pattern that integrates domestic and foreign trade while giving equal importance to physical and service trade.

To fulfill these objectives, specific supporting industrial policies are needed. Shanghai's Eleventh Five-Year Plan requires the city to continue to uphold the “tertiary, secondary, and primary” principle in industrial development. To form an industrial structure centered on a service economy, priority will be given to the development of the modern service industry and advanced manufacturing industries as well as the improvement of independent innovation capability. In addition, informatization will become the main aim of upgrading industrial standards and promoting the integrated development of secondary and tertiary industries.

1. Guiding Policies for the Development of the Modern Service Industry

The Shanghai Municipal Government has the following policy suggestions on prioritizing the development of the modern service industry.

1.1 The Financial Service Sector

Shanghai will step up its efforts to pool together financial institutions of various kinds. The city will make greater efforts to attract financial institutions such as securities, fund management, trust investment, and private banks. It will also seek to become the center for head offices, business headquarters, capital operation headquarters, regional headquarters, and data processing centers of existing Chinese institutions, as well as the regional headquarters, business headquarters, and main reporting banks of foreign institutions.

Shanghai will gradually build up a solid financial market system. It will consolidate the leading position of the Shanghai Stock Exchange in the capital market, and actively develop the corporate bonds market. It will fully utilize the role of the Shanghai Foreign Exchange market and money lending Market as pricing centers. With the Shanghai Futures Exchange as a platform, vigorous effort will be made to develop the financial derivatives market. In addition, the city will also promote the insurance market and develop the reinsurance market so as to enable Shanghai to become China's reinsurance center. Seizing the opportunity that Shanghai United Ownership Exchange was designated by the state as a pilot institution to handle state-owned equity transfer for enterprises directly under the central government, it will expand the scope and radiation effect of the equity trading. In addition, it will strive to establish organic links between different financial markets, so that the financial markets for currency, foreign exchange, capital, and insurance will become interconnected.

Shanghai will make efforts to launch trading in crude oil futures, government bond futures and stock index futures, foreign currency forward, individual gold, gold futures, and China container freight index futures. It will vigorously promote liability insurance products, and speed up innovation in financial products. In addition, it will encourage the establishment of money brokers and new types of financial institutions for company pension and medical care. It will carry out further research to ensure a solid coordination system for risk prevention and control. To facilitate the building of a shipping center, appropriate related financial services will be developed. There will also be support for pilot innovation projects by such securities companies as Guotai Jun'an, Haitong, Shenyin Wanguo, and Orient. Active research will be done on innovated financial products for collaboration between banking, insurance, and securities in split operation mode, and explore other business innovation in financial institutions.

Shanghai will use its financial model for economic modernization in the Yangtze Delta, and enhance the region's financial cooperation and interaction. Much energy will be spent on implementing the “go out” strategy, encouraging cross-regional development of Shanghai-based banks, and buoying up financial institutions in the preliminary stages, in order to develop international markets. The city will cooperate with Hong Kong and encourage Shanghai-based and Hong Kong-based financial institutions to set up branch offices in the two cities. It will also encourage financial institutions to provide good support services for domestic exporters, and enhance insurance services for foreign trade, shipping, and other industries.

1.2 Cultural Services

While meeting the basic needs of its citizens, Shanghai will rely on market mechanisms and strengthen international ties so as to accelerate development in cultural entertainment, education and training, sports and fitness, and healthcare, making it one of the most attractive cities for people from both China and overseas to live, work, and run a business. By 2010, the value added for Shanghai's cultural services will reach RMB 50 billion, and the figure for education and training will amount to RMB 40 billion. To achieve these goals, Shanghai will adopt the following measures:

  • Shanghai will further open its cultural markets in compliance with relevant legislation, and encourage private and foreign capital to invest in cultural projects through joint ventures, cooperatives, or shareholding. They will also be allowed to take part in cultural competitions of various forms, including equity trading, merger and acquisition, time-sensitive operation rights transfers, government franchise converted into equity, naming rights (sponsorship) of cultural activities, and franchise auctions. Shanghai is also keen to attract world-famous recreation groups, and large-scale recreation facilities, such as theme parks. It will launch additional television channels in foreign languages to broaden its international reach.
  • Shanghai will improve its layout of cultural facilities, as elaborated by the “one axis, two rivers, multiple circles, and featured blocks.” The “one axis” refers to three groups of cultural facilities located around People's Square, Lujiazui, and Century Square. The “two rivers” comprise the cultural facility belts along the Huangpu River and the Suzhou River. The “multiple circles” include the four sub-city centers of Xujiahui, Huamu, Wujiaochang, and Zhenru, as well as Lingang New City, Songjiang New City, and Anting New Town in the suburbs. The “featured blocks” include Duolun Road, well known for former residences of famous people, and Taikang Road, popular for its antiques and works of art.
  • Shanghai will develop the multimedia content industry and turn itself into a digital city. By adopting multimedia and network information technology, Shanghai will develop broadband multimedia, mobile communications, and a world-class digital TV broadcasting platform. It will also promote the production and commercialization of such multimedia content as network-based education, digital movies, digital publishing, and business information. It will push forward the development of a network-based interactive entertainment industry, with all-round innovation in creative design, and development of and applications for cartoon and game software. In addition, it will set up remote healthcare, education and training centers, as well as establish electronic medical record and medical service inquiry systems.
  • Shanghai will promote educational opportunities for local and foreign students, and strengthen vocational training. Shanghai will improve its infrastructure for international students, and over time, offer more opportunities for overseas students to enroll in its schools and universities. The number of foreign students is projected to rise to between 70,000 and 80,000 by 2010. No effort will be spared to attract more world-renowned academics and further expand the scale of postgraduate education. The city will step up Chinese-foreign joint educational programs. Furthermore, it will revise the vocational qualifications certification system, promote market-oriented training, and foster an examinations market for vocational qualifications and specialized skills evaluation.
  • Shanghai will diversify medical investment and develop a multi-tiered medical service system. The city will bring in multiple social capitals to establish medical institutions, and encourage foreign medical institutions to set up joint-venture hospitals. It will support grade three hospitals to utilize their surplus resources for medical cooperation with world-famous medical institutions. The city will gradually expand and optimize high-end medical care, as well as such multi-tiered medical services as medical treatment and rehabilitation, and health care.
  • Shanghai will make active efforts to host major sporting events, and foster the growth of the sports industry. Through hosting such international sporting events as the Formula One World Championship and the Tennis Masters Cup, Shanghai will endeavor to attract the contractors for the world's top sporting events to set up their regional headquarters in Shanghai. Development of the sports industry will also be promoted in such areas as competition, fitness and recreation, and sports training and such sports-related industries as sports broadcasting, lotteries, performances, advertising, and the production and sales of sports products.

1.3 Modern Logistics and Shipping Services

Adhering to the “zone-port interaction” strategy, Shanghai will accelerate the building of modern logistics bases, enhance shipping service, consolidate its position as a key center for global logistics, and endeavor to become a vital international container and air freight hub in the Asia-Pacific region. By 2010, container handling will reach 25 million TEUs, air cargo volume 3.2 million tons, and the value added of the logistics industry will account for more than 10% of the city's GDP. Specific policies and measures designed to achieve these will include the following:

  • Shanghai will implement the “zone-port interaction” strategy fully in Waigaoqiao and provide fast and convenient customs clearance for imports and exports in the port zone. Shanghai will study the functional positioning of Yangshan Deep Water Port Zone and fully utilize the strategy's guidance for the bonded and export processing zones. Effort will be made to increase the frequency of ocean liners dockings at Shanghai port so as to reduce the transit cost for foreign trade containers along the coast. Other areas pinpointed for fast development in the shipping service industry include ship leasing, maritime arbitration, shipping transactions, insurance, and consultation.
  • Shanghai will leverage its two international airports and its unique geographical location. It will also quicken the expansion of Pudong Airport, and the construction of its auxiliary projects. International cooperation in airport management and operations will be actively sought in order to attract as many Sino-US air cargo lines to Shanghai as possible. Initiatives will be put in place to attract international air transport giants to set up China operation centers and regional headquarters, and develop their air cargo transportation business in Shanghai.
  • Shanghai will put in place a coordination mechanism for modern logistics and formulate a strategic plan for the logistics industry while promoting standardization. It will also eliminate prior registration approval for enterprises (unless otherwise stipulated by the central government), abolish business qualifications approval for international freight transport agents, and set up reasonable taxation criteria for the turnover tax of logistics enterprises.
  • Relying on the hinterland of the Yangtze Delta, Shanghai will accelerate and coordinate the construction of combined ports in the area, develop an efficient distribution network for freight transportation between Shanghai and other cities, and build an intercity network of high-speed railways and expressways. It will focus on the construction of Waigaoqiao Logistics Park, Pudong Airport Logistics Park, Northwest Logistics Park, and Deep Water Port Logistics Park, among others. Connections will also be established between the logistics information platforms of export processing zones, the bonded zone, and the special zones controlled by customs. The city will also establish connection with and share logistics information with major domestic and foreign seaports and airports, build up a multiple transportation logistics network system through the “five-ports-in-one” strategy which integrates deep water, sea, air, land, and information ports.
  • Through the integration of domestic and foreign markets, and with competition and cooperation between logistics enterprises, Shanghai will foster the growth of a well-developed third-party logistics market. The city will provide key support to outbound projects of large local logistics enterprises, and inbound projects from large logistics enterprises outside Shanghai and China. It will also support logistics enterprises that undertake large-scale logistics outsourcing projects from industrial and commercial enterprises.

1.4 Exhibition and Tourism Industries

By taking its turn as the host for the World Expo 2010, Shanghai will improve the environment and upgrade its infrastructures, broaden the tourism industry's reach, develop particular tourism products, enhance exhibition and tourism service functions, and better define the city's signature image. By 2010, Shanghai is expected to be the venue for 500 international exhibitions, 20 international top brand exhibitions, and 1,000 international conferences, and the city will provide accommodation for 5.5 million foreign tourists. There will be 60 international hotels and travel services. With these objectives fulfilled, Shanghai will transform itself into one of the most outstanding international destinations for exhibition and tourism in the Asia-Pacific region.

Shanghai will speed up the development of cultural tourism along the banks of the Huangpu and Suzhou Rivers, and create new attractions for leisure and sightseeing. In addition to such projects as water tourism and a public pier, Shanghai will build an international cruise terminal and public yacht clubs in order to develop the cruise business. The city will also strive to attract world-famous theme parks and develop Shanghai Tourism Festival into a top global cultural event.

Shanghai will also enhance intra-regional cooperation in the Yangtze Delta, and jointly provide services such as the Chinese garden tour in Jiangsu, the natural beauty tour in Zhejiang, and the city tour in Shanghai. It will also work together with Zhejiang and Jiangsu to develop electronic maps for the region and introduce an electronic card, ensuring access to a variety of tourism attractions.

Shanghai will take steps to accelerate tourism-related infrastructure development, such as transportation, tourist centers, and road signs for points of interest, so as to build a tourism network for the city and its surrounding regions. Other efforts include introducing regulations on staff annual leave, promoting informatization in tourism, and establishing a holiday tourism prediction and alerting system.

1.5 Information Services

Shanghai will rely on information technology to stimulate industrialization, reform the traditional service industry, ensure a balanced ecology, speed up the development and use of public platforms and content resources. In particular, it will focus its efforts on integrating and sharing computer network resources and enhancing network security. By 2010, the value added of this industry is projected to reach RMB 100 billion, and the diversity of content services will cover about 90% of similar services in developed countries. Shanghai will become China's information service center, the core area for international information service groups and one of the most important telecommunication hubs in the Asia-Pacific region. Measures and policies for this industry are mapped out as follows.

  • Shanghai will map out the 11th Five-Year Plan for the development of the information service industry, and push forward the outsourcing of government informatization projects. Alongside the improvement of such essential services as telecommunications, it will prioritize the development of such new services as e-commerce and online games. The municipality and its districts will jointly formulate policies to plan and build information service industrial parks, and cultivate and strengthen a number of brand enterprises.
  • Shanghai plans to build information service platforms for implementing “urban rejuvenation through science and education,” offering public interest and general information services. It will also establish a unified platform for third-party information services to realize resource-sharing. A leading local software-testing platform will be built, to provide product testing and quality control. Computer game development platforms will also be set up to provide product testing and personnel training.
  • Shanghai will continue to strengthen the establishment of a platform for trade, exchange, and the reuse of intellectual property rights for integrated circuit silicon, and optimize the industry chain for integrated circuits. It will also continue to focus on the development of fundamental and strategic software products, and strive to achieve breakthroughs in operating systems and databases. Moreover, it will set up software component libraries and component platforms, to improve efficiency in software development.
  • Shanghai will build a digital television broadcasting platform of global proportions and standards, to provide various services such as digital video, digital audio, and data information. It will also set up a broadband multimedia platform and mobile telecommunication platform, and facilitate the production and commercial operation of multimedia content in network-based education, electronic entertainment. In addition, it will develop an electronic atlas database to achieve automatic vehicle navigation through the use of relevant hardware.
  • Shanghai is planning to establish three value addition chains: an internet-based value addition chain for e-commerce and computer network games; a wireless broadband network-based value addition chain for mobile terminals, such as on-board vehicle navigation systems and 3-G mobile telecommunications; and a cable network-based value addition chain for digital television.
  • Shanghai will accelerate the building of platforms for electronic administration and digital authentication. It will build a platform for network monitoring and alerting, an emergency backup platform, and a mechanism for supervising information security. Its existing interdepartmental information system or information sharing will be further refined for better resource collection, maintenance, and sharing.

1.6 Specialized Services

In compliance with China's WTO accession commitments, Shanghai will gradually open its own specialized service market and enhance its competitiveness in intermediary services. By 2010, it will form a modern intermediary service framework capable of providing a full range of services. By then, Shanghai's intermediary services are expected to cover 60 industrial sectors, employ a workforce of 600,000 in a number of leading, well-known, and prominent Chinese enterprises, establishing Shanghai as an important intermediary service base for China and the world. The following measures will be taken to ensure this.

  • Shanghai will break industry and sector monopolies, stream-line or eliminate impractical local restrictions, abolish all market entry thresholds and designated mandatory services not covered by laws and regulations, creating a fair, open, and standardized market environment.
  • Shanghai will work toward the spin-off of intermediary institutions from relevant government authorities. All intermediary institutions engaged in commercial activities will be transformed into independent entities, and those exercising administrative functions will be withdrawn from the market and changed into non-commercial institutions to serve the public interest. When the spin-off and reorganization of economic evaluation-related intermediary services (such as auditing and appraisal) is done, Shanghai will then separate non-appraisal intermediary institutions that serve such public accountability functions from government departments.
  • On the basis of the policies made to attract the headquarters of multinationals, Shanghai will take active measures to attract professional service institutions engaged in such services as accounting, legal services, consulting, and appraisal, and expand the scope of cooperation in professional services.
  • Shanghai will implement pilot projects to liberalize qualification practices. It will guide some professional accounting and legal service institutions that top the list in terms of scale of operation, performance, and branding, to grow into group companies and large institutions with prominent branding in China.

2. Guiding Policies for the Development of the Advanced Manufacturing Industry

In 2005, the Shanghai municipal government formulated the Action Plan to Give Priority to the Development of the Advanced Manufacturing Industry. The plan proposed ten strategic actions designed to prioritize the advanced manufacturing industry.

2.1 Stepping up Industrial Technological Innovation

Advanced manufacturing is a technology-intensive industry that depends largely on technological innovation for sustainable development. Shanghai's municipal government has thus proposed the building of a number of national-level industrial technological innovation systems for such industries as automobiles, equipment, petrochemicals, top-quality steel, aviation and aerospace, microelectronic design, technology and equipment, photo-electronics, and new flat panel displays, and shipbuilding among others.

Technological innovation capability relies heavily on the standard of the intellectual property rights (IPR) system. Therefore, the Shanghai Municipal Government has formulated a strategy to promote IPR and technical standards. Specific measures include encouraging IPR demonstration projects, and speeding up the implementation of technological standards.

Enterprises are the main agents of technological innovation, and large enterprise groups enjoy more competitive advantages in Shanghai. For this reason, Shanghai must improve the technological innovation system of large-scale groups and enterprises. In addition, in order to support enterprises for technology innovation, Shanghai has also recommended that public technology platforms for development zones above municipality level should be built, and innovation systems set up to serve small- to medium-sized and private enterprises.

2.2 Speeding up Industry Concentration and Agglomeration in Industrial Parks

Shanghai will actively push forward industry concentration in industrial parks. It will locate all new projects in industrial parks, relocate industries involved in the adjustment and optimization of industrial layout from the city center to the parks, and gradually move scattered industrial sites to the parks. The city will improve specialized support services, strengthen industry layout guidance, and promote the development of industry clusters, so as to form a development pattern featuring industry agglomeration, intensive land use, industrial concentration, and integrated management.

Shanghai will promote the formation of industry clusters. It will guide the development of industry clusters on the basis of industry chains in order to reduce operation costs, optimize the ecology of the industrial environment, and quicken the formation of industry agglomerations. Relying on the six industry bases and development zones above municipality level, it will enhance the development of a number of industry clusters: micro-electronics and information, photo-electronics, automobiles and auto parts, petrochemicals and fine chemicals, top-quality steel, shipbuilding and port facilities, heavy equipment and packaged equipment, aerospace and aviation, and biomedicine, pharmaceutical, and traditional Chinese medicine.

Shanghai will upgrade the construction and management level of industrial parks. It will evaluate future projects and industries on trial. Moreover, it will upgrade the environmental protection infrastructure in industrial zones, and improve the mechanism for the construction and operation of environmentally-friendly infrastructures. It will promote interaction between the municipality and the zones, and develop branding for industrial parks.

2.3 Improving the Manufacturing Industry's Global Competitiveness across the Board

Shanghai will stay market-oriented and focus its efforts on fostering sets of consumer goods, equipment, advanced technology, and service brands. It will render particular support to stable and prominent enterprise groups, growing them into future Fortune Global 500 corporations. It will endeavor to form a set of internationally well-known industries, enterprises, and products, and improve its brand R&D and service capability.

Shanghai will identify a number of brands with international reputations and domestic influence, and upgrade and promote these brands through such aspects as product quality, product market positioning, brand culture, production standardization, quality assurance, and brand image. At the same time, it will use the advanced brand management experience of developed countries as a reference in order to set up a robust information-processing platform for these brands and formulate effective brand maintenance and competition strategies.

Shanghai will strive to create a good environment for brand development. Firstly, it will create an equitable brand competition environment for enterprises that operate under different forms of ownership. Secondly, it will make full use of the role of brands in propelling industrial development, and establish a brand promotion mechanism that benefits the development of pillar industries and contributes to the adjustment in product mix and industrial structure. Thirdly, it will build a brand development service system, ranging from brand publicity to promotion, consulting, operations, and personnel training. Fourthly, it will enhance brand protection and endeavor to crack down on such illegal activities as counterfeit trademarks and brands. At the same time, Shanghai will protect its traditional brands, especially those of small-scale hand-made products.

2.4 Striving to Form a Resource-efficient Mode of Development

Shanghai will map out its industrial layout plan for 2010, and cultivate an industry distribution in light of the overall construction of the city and its towns, covering the central city, new cities, new towns, and new residential quarters. It will reinforce intensive land usage, gradually increase the plot ratio in development zones, and continuously improve the output rate of unit land. It will also prohibit land use for new projects that are banned either by the central government or by the Shanghai municipal government. Lastly, it will ensure land availability for those industries prioritized for development.

Shanghai will effectively regulate energy and raw material supplies. Firstly, it will strengthen the balanced supply of production factors, ensure a safe energy supply, and formulate a guarantee mechanism for the supply of key commodities and industrial materials. Secondly, it will establish and improve a monitoring and analysis system focusing on economic performance, the import and export of key commodities, and industrial hazards. Thirdly, it will enhance alert systems and contingency plans for major events. It will closely monitor the impact of raw material price changes on industries, put enhanced counter-measures in place, and compile contingency plans.

Shanghai will strictly implement environmental protection standards and cancel preferential energy pricing for high-energy consumption industries. It will allow district and county governments a free hand in eliminating unfavorable industries by legal, economic, and administrative means. Enterprises operating with products, technologies, and equipment banned by the central government, as well as those enterprises involving backward technology, high pollution, high energy consumption, and serious toxic and hazardous materials, will be closed down, have their operations stopped, be merged or converted to other businesses, and finally eliminated within specified time limits. Meanwhile, the city will give full support to those enterprises that make effective use of their idle industrial land, take the initiative in transforming their business, and provide safe, healthy, and congenial conditions for their employees.

Shanghai will pilot clean production and promote comprehensive utilization of resources. The pilot project will be started first in 50 enterprises. In addition, it will establish demonstration parks for a circular economy in the Shanghai Chemical Industrial Park, Zenghejing Development Zone, Wujing Industrial Zone, and Baosteel Group. By 2007, more than 50% of industrial zones will be certified by ISO9000 or ISO 140000, and by 2010, over 80% of them will carry the double certification.

2.5 Speeding up the Internationalization of the Manufacturing Industry

Shanghai will endeavor to attract investments of foreign high-tech industries with a view to assimilating and modifying the technologies introduced by these international enterprises. It will encourage foreign enterprises to invest by groups; that is, to invest in a set of upstream and downstream projects. It will also utilize the capital and production expansion of existing projects to attract more foreign capital, and further enhance investors' confidence, so that foreign capital will grow deep roots in Shanghai. The city will also encourage mergers and acquisitions of Chinese enterprises by international capital so that multinational corporations can play a part in the restructuring and transformation of state-owned enterprises. In addition, it will encourage the development of foreign-invested enterprises, and improve the capital market.

Shanghai will rely more on international professional consulting firms and intermediary institutions in its effort to attract foreign capital. In particular, it will apply this strategy with regard to such industrial parks as Lingang Industrial Park, Shanghai Chemical Industry Zone, and the industrial parks in Jiading, Qingpu, and Songjiang.

Shanghai will encourage suitably mature enterprises to move out of China, raise their standards to be on par with international industries, and achieve integrated growth with global industries. It will also encourage suitable enterprises to merge or acquire overseas enterprises with established brands and core technology, and promote the operation of trademarks as an intangible asset. It will also encourage them to merge with and acquire foreign R&D organizations, so as to gain a leading position in technology. In addition, it will encourage such enterprises to invest in and set up overseas factories, and undertake international processing and trading, so as to gain a firm foothold in international markets. Moreover, Shanghai will explore ways to provide information services on overseas investments, mergers, and acquisitions.

2.6 Advancing the Production Service Industry

Shanghai will prioritize the development of ten key production service industries: R&D, automobiles, packaged services, logistics, design and creation, procurement, shipping, exhibitions, consultations, and vocational education. At the same time, the city will work to shape up ten clusters of production service industries. These include the R&D Service Zone at Zhangjiang, the Technology Service Zone at Caohejing, the Equipment R&D Service Zone at Minhang, the Chemical R&D Service Zone at Caojing, the Science and Education Service Zone at Zizhu, the Auto Service Zone at Jiading, the Business Process Outsourcing (BPO) Zone at Pudong, the Logistics Service Zone at Waigaoqiao, the Logistics Service Zone at Lingang New City, and the Northwest Logistics Service Zone.

3. Policies on Industrial Structure

Industrial structure policies promote the optimization, upgrading, and rationalization of industrial structure. They can advance the evolution of industrial structure in accordance with the rules of industrial development and plan for and promote the development of pillar industries on the basis of the advantages and prospects of a country or region in developing certain industries.

3.1 Policies for the Pillar Industries

The following factors should be considered when a country or region chooses its pillar industries. Firstly, a pillar industry should be able to remain at the forefront of industrial and technological development. Secondly, a pillar industry should have resource advantages and good prospects. Thirdly, a pillar industry should be able to expand its existing advantages in terms of technologies and markets.

Taking into account the above factors, Shanghai has set its pillar industries for the Ninth Five-Year Plan period: automobile manufacturing, communication equipment, packaged equipment, petrochemicals, steel, and electrical appliances. For the Tenth Five-Year Plan period, its six pillar industries were information, finance, commerce and trade, automobile manufacturing, packaged equipment, and real estate. Setting finance, commerce and trade, and real estate as pillar industries demonstrated that Shanghai's industrial structure was moving toward service industries as its mainstay. All six pillar industries showed strong prospects for market demand, high technology content, good economic returns, high growth, considerable economic scale, as well as inter-industry correlations. They were the leading industries of Shanghai, and thus represent the city's core competitiveness. During the Eleventh Five-Year Plan period, the modern service industry and the advanced manufacturing industry will be taken as the key direction for development, and the selection of pillar industries will be changed accordingly. Real estate, which has given great impetus to Shanghai's economic development, will be taken off the list, since it has completed its pivotal role in the city's economic progress. Two of the four new industries that received special attention during the Tenth Five-Year Plan period were the aerospace and seafaring industries in the category of modern logistics. After several years of development, the aerospace and seafaring industries have increasingly contributed to Shanghai's economic development. Thus, they are set to become part of Shanghai's pillar industries during the Eleventh Five-Year Plan period.

3.2 Policies on Regional Economic Coordination

As the core city in the city cluster of the Yangtze River Delta, Shanghai must maintain its economic development in harmony with that of other cities in the delta. In order to promote regional economic integration and coordinated development, the Shanghai municipal government has adopted a series of related policies and measures in light of China's overall strategy and Shanghai's development needs. Since 2003, it has adhered to a guiding principle of “considering the overall situation, opening up wider, serving the entire country, and seeking common progress through integration.”

In recent years, as Shanghai Municipality, Jiangsu Province, and Zhejiang Province have all put forward the strategy of seeking development in the general context of the entire Yangtze Delta region, regional economic integration has gained greater momentum. Agreements have been reached on mutual cooperation and linkage (the Common Declaration) in such diverse areas as human resource, administration of industry and commerce, commodity inspection, and tourism.

3.3 Industry Exit Policy

The survival of the fittest necessitates the elimination of the less well-adapted. Thus, an effective exit mechanism is necessary for economic development. In a broader sense, an industrial exit policy applies to both declining industries and stable industries which are to be taken off the list of government-supported pillar industries. The exit of these stable industries is frequently due to the fact that the industries in question have fulfilled their key roles in development. If they were to be overemphasized, long-term economic development would be impacted.

A typical example is Shanghai's real estate industry, which once dictated the speed of Shanghai's economic growth in the Tenth Five-Year Plan period. In the Eleventh Five-Year Plan, real estate was replaced by the aerospace and seafaring industries on the list of pillar industries. In this period, Shanghai will shift the focus of its attention to the modern service industry and advanced manufacturing, and the real estate industry will no longer be in the limelight.

For Shanghai, the industry exit policy also involves a shift of Shanghai's industries to the surrounding regions. With the policy of prioritizing advanced manufacturing and modern service industries in place, Shanghai is also working hard to implement its industrial shift plan so as to assure the efficient use of limited land resources. For this, it raised investment entry standards, restructured less favorable enterprises, and gathered advantageous industries. In 2005, eighty disadvantageous enterprises were merged, reorganized, or relocated in the Songjiang Development Zone.

3.4 Policies Encouraging Independent Innovation

Independent innovation is the key to achieving the optimization and upgrading of industrial structure and implementing the strategy of “rejuvenating Shanghai through science and education.” To encourage independent innovation, the Shanghai Municipal Government advanced the following policy suggestions in 2005:

  • Developing a national-level industrial technology innovation system featuring independent R&D capabilities. This technology innovation system covers automobiles, packaged equipment, petrochemicals, top-quality steel, aerospace and aviation, microelectronic design, techniques and equipment, photo-electronics and new flat panel displays, shipbuilding and auxiliary services, and biomedicine. Here, key disciplines, well-known professors, doctorate degree programs, state-level laboratories, engineering centers, research institutes, and R&D departments of multinationals, technology centers of major large enterprises will play an important part. Of course, governmental support, in the form of subsidies and investment, is also indispensable.
  • Promoting IPR and technical standards. Firstly, Shanghai will promote demonstration projects for intellectual property rights, ranging from searching to application, utilization, implementation, management, and protection. Secondly, the city will provide vital support to enterprises that are involved in the formulation of international and national standards with a view to gaining the edge of technical competition.
  • Improving the innovation system of large groups and enterprises. Shanghai will increase its competitiveness by enhancing the core technologies of enterprises, building and upgrading their R&D centers, and improving their ability to absorb new technologies and innovate in order to achieve secondary innovation. It will also encourage technical innovations through international cooperation, such as merging and acquiring overseas technical teams and research platforms. It will promote close cooperation between applied economics research institutes and enterprise groups, and fully utilize the science and technology resources of central research institutes located in Shanghai.
  • Fostering an innovation system for small- and mediumsized state-owned and private enterprises. Shanghai will assign about 150 small- and medium-sized state-owned and private enterprises as demonstration enterprises, and provide them with focused support and service. Each year, it will push forward the industrialization of a number of science and technology projects in private enterprises. It will also enhance its policy support for model enterprises that possess good market prospects, high technology levels, rich human resources, and exemplary management.

Talent fostering, development, and utilization are crucial to the city's efforts to uplift the independent innovation capabilities of enterprises. To this end, Shanghai compiled the Directory of Human Resource Development in the Key Fields of Shanghai in 2005, highlighting six fields in human resource development: culture, finance, biomedicine, new materials, electronic information, and port navigation. The directory calls for efforts to attract and train talent in light of actual industrial needs, rationalize professional capability assessment systems, improve the quality of talent services, and enhance the awareness of talent security.

4. Policies Supporting the Development of Small-and Medium-sized Enterprises

Speeding up the development of small- and medium-sized enterprises is an important strategic measure adopted by Shanghai Municipal Government. Thus far, it has developed a pattern and created a favorable environment for the development of small- and medium-sized enterprises. The Municipal Government of Shanghai issued the Decision to Promote the Development of Small Enterprises in Shanghaiin 2001, calling on all government departments to work together to bring about a clear improvement to the development environment for its small enterprises.

4.1 Simplifying Procedures for Company Registration

Industry and commerce administration bureaus are required to process the application, inform related authorities, carry out parallel examination and approval, and finish within a specified time limit. Online application and a 24-hour voice inquiry system for enterprise registration were also introduced in 2001 to further streamline the procedures.

4.2 Energetically Supporting the Development of Small Science and Technology Enterprises

A pilot project is being conducted in Zhangjiang High-Tech Park to lower entry requirements and encourage science and technology enterprises to start up business in the Park. Policy support is extended to high-tech and new technology enterprises regarding the registration and commercialization of high-tech achievements and equity investments in the form of intellectual achievements. Technical and financial support is also given to small science and technology enterprises.

4.3 Promoting the Restructuring of Small Enterprises

Firstly, diversified investments should be promoted. A survey of selected industries showed that about 40% of small enterprises from light industry, instruments, electricals, and chemicals have undergone ownership restructuring through absorbing private capital; their internal corporate governance structure has also been improved. Secondly, the city transformed small enterprises with higher degrees of specialized cooperation into specialized supplementary enterprises with competitive advantages so as to form an industry chain. Thirdly, an exit channel has been opened for less favorable enterprises. In 2001, a number of disadvantaged and small, state-owned industrial enterprises, with backward technology, low competitiveness, and huge debts, were successfully terminated through such measures as halting operations and bankruptcy.

4.4 Providing Financial Management and Accounting Services to Small Enterprises

Aiming to guide small enterprises in financial and accounting management, so as to solve their problems, the financial and taxation departments of Shanghai took the initiative to introduce common management systems such as the internal control system, full-range budget management, and internal management system for small enterprises.

On March 12, 2003, the Shanghai Municipal Government published the Provisional Measures on Loss Subsidy to Guarantors of Loans to Shanghai's Small Enterprises. The implementation of these measures will effectively attract private capital as guarantees for small enterprises. It will not only play a vital role in nurturing mutual guarantee institutions, rationally sharing guarantee risks, and regulating the operation of guarantee institutions, but will also lay a solid foundation for launching re-guarantees and further improving the guarantee system for Shanghai's small enterprises. Meanwhile, it will give full play to the role of government funds as a lever to support, promote, and regulate the operation of guarantee institutions, enlarge guarantee scale, form a multi-tiered loaning guarantee system, and effectively ease the capital shortfall of small enterprises.

At present, Shanghai is gradually building a network for serving small- and medium-sized enterprises. The city has established a city-wide information and training service system for small- and medium-sized enterprises, consisting of service institutions at municipal, district, and country levels, and intermediary institutions in the community. In the future, it will focus its efforts to improve policy support, better financial services, upgrade IT-based information services, perfect science and technology services, promote human resource development, and provide better management consulting services.

5. The Role of Industry Associations in Boosting Shanghai's Industries

As of February 2006, Shanghai had 203 general or special industry associations covering such industries as metropolitan industry, equipment manufacturing, chemicals, medical and new materials, information industry, metallurgy and non-ferrous metals, commerce and trade, and the service industry. These associations serve as a bridge to link government institutions, enterprises, and the community. In particular, all industry associations have actively participated in corporate brand building, compiling industrial development plans, and promoting the strategy of “rejuvenating Shanghai through science and technology.”

Shanghai's industry associations have fully involved themselves in industrial development through offering guidance and services. For instance, the Shanghai Software Industry Association promoted the healthy development of the industry by constantly improving policy and social environments, enabling it to maintain rapid growth in 2005. Annual software sales reached RMB 45 billion, and the number of software enterprises totaled 1,650 by the end of 2005, with a workforce of more than 120,000.

Industry associations in Shanghai have actively participated in industry surveys and come up with well-written industrial survey reports, providing a decision-making basis for government departments. For example, the Shanghai Packaging Technology Association, as authorized by the Shanghai Municipal Economic Commission, spent half a year compiling the Survey Report on Shanghai's Packaging Industry.

Collecting industrial statistical data by industry associations is one of the important measures for decentralizing government functions, giving greater authority to associations, and enhancing their service functions. By the end of 2005, a total of 14 industrial and commercial associations had participated in a pilot scheme to collect industrial statistics. They have also developed a relatively complete and scientific set of indicators, established statistics networks, conducted statistical analyses, set up statistical databases, and played an active role in advancing industrial development.

In order to adapt to new conditions after accession to the WTO, over half of China's national standards are in urgent need of revision or abolition. Many of Shanghai's industry associations have taken this opportunity to actively formulate industry standards, so as to provide a decision-making basis for the revision of new national standards. For example, the Shanghai Food Industry Association has undertaken the revision and formulation of standards for products including seasonings, distiller grains, and sesame oil, and has assisted with the implementation of a market entry system for 28 types of food by the end of 2005.

It is now an imperative for industry associations to organize enterprises to respond to frequent international claims about antidumping. So far, many industry associations in Shanghai have established and strengthened the industry's damage alert mechanism, in order to face the new challenges after China's accession to the WTO. For example, Shanghai's Industrial and Economic Federation published the 100 Stratagems for the WTO: Volume Three of Reflections on the Role of Industry Associations after China's WTO Accession. The book contains 100 articles addressing such areas as international trade barriers, China's policy mechanism, WTO exception rules, the international dispute settlement, China's WTO commitments, and countermeasures for CEPA, providing policy suggestions for industries facing anti-dumping claims.

Taking advantage of Shanghai's role as an emerging international exhibition center, many industry associations have organized professional exhibitions and influential forums to boost industrial development. Such events have served to enhance the rallying power and influence of these associations.

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Shanghai's Industry Policies and Associations

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