The Shanghai Story
In 1987, Shanghai was dimly lit, unpainted financial wreck, at a time when China would soon be reeling from the international backlash following the bloody Tiananman crackdown. However, with Zhu Rongji’s term as mayor from 1987 to 1991, the city witnessed vast renaissance like improvements. “One-chop Zhu” – the nick has earned as mayor of Shanghai for cutting through red tape – led the development and opening of Pudong (Shanghai’s hinterland).
“Infrastructure goes first” was the strategy followed by Pudong since began its development. it undertook ten major infrastructural projects (including bridges, tunnels, the metro, deep-waterport) as a result of which Shanghai grew at 8-10 percent per annum in the 90’s and Pudong at between 16 and 18 percent. Moreover, the $40 billion investment in infrastructure changed the face of Shanghai – entire books were rebuilt and its roads, buildings, transport and telecom emerged as the best in the world. In fact, it now has several other infrastructural projects underway, which include an international airport, a subway and a pedestrian passageway across the Huangpu river separating that area from down town Shanghai.
The Mumbai story
Mumbai’s real estate problems are both immense and complex. The problems encompass both sides of the income spectrum. At the lower end of the spectrum, there is a huge shortfall of affordable housing – 50-60 percent of Mumbai’s population lives in slums – reflecting the high expensive, yet lacking in quality (dilapidated buildings, lack of green spaces and parking facilities, inadequate infrastructure). In addition, the rental housing market is both illiquid and unaffordable. Rental housing (as a percentage of total housing) is 5-10 percent as compared to international benchmarks of 40-50 percent.
Currently, Mumbai is a divided city – a city of the rich and the poor who live a parallel yet interdependent lives. It is a city that has edged away from manufacturing, which defined its central character, towards services without dealing with the messy leftovers of the move from one to the other. A vision of a city caught between so many contenders – the industrialist and the worker, the son of the soil and the world citizen, the elite and the poor – all claiming its citizenship must necessarily integrate their needs.
Fit it to become a world-class city, Mumbai must ensure that housing becomes more affordable, the rental housing market is resuscitated, land is developed in an integrated manner and the city housing stock is upgraded. Specifically, the percentage of population living in slums must fall to 10-20 percent, housing prices should be no more than 3-4 times the annual household income, and the percentage of rental housing (to total housing) should be 30-40. In addition, Mumbai should start creating islands of excellence in world class housing and commercial complexes, as well as upgrading its housing stock.
To achieve this aspiration, Mumbai must create 1.1 million low-income houses over the next decade (0.8 million to rehabilitate existing slum dwellers and 0.3 million to house the population increase and migration of the low-income segment). Furthermore, we should define the pricing and affordability carefully. The average monthly household income for the bottom 30 percent of Mumbai’s population is Rs 6000 or less and for this segment, affordable housing should mean spending no more than Rs 750-1500 per month on rental housing, or purchasing houses at a price below Rs 1.5 lakh at current prices.
It is estimated that a total public and private sector investment of Rs 200000 cr ($40 billion) will be required over the next ten years. However, of this, only Rs 50000 cr (i.e., around Rs 5000 cr per year) will need to be public investment, spent primarily on transport and housing. The good news is that the Government will need to put in only around Rs 1500 cr per year or Rs 15000 cr over the next ten years to finance the Rs 50000 cr, the rest coming from long term loans that can be financed based on user charges and increased tax collection. This Rs 1500 cr per year contributed by the tax payers will attract private investments in housing, power, telecom and other key economic growth sectors such as manufacturing and services to the tune of Rs 150000 cr over the next ten years, thus giving a 1:10 multiple.
Shanghai Vs Mumbai
Macroeconomic Environment
Data reflecting the macroeconomic environment of Mumbai, Shanghai and Singapore are presented in Table 1. In terms of GDP growth, Shanghai is the clear leader, while Mumbai is also experiencing impressive growth. It should be recognized by that these figures likely overstate the growth advantage of Mumbai and Shanghai compared with established international financial centers such as Singapore. This is primarily because Mumbai and Shanghai can grow quickly for a time as they catch up to the richer economies.
Shanghai Mumbai Singapore
GDP Growth 10.4 5.5 –0.1
GDP Per Capita (USD) 4909 678 20887
Trade Intensity 1.05 1.06 2.85
WEF Macroeconomic Env. Rank 25 52 1
Even if Mumbai and Shanghai can sustain high rates of growth into the foreseeable future, their current levels of GDP per capita, Shanghai has gained a jump on Mumbai by virtue of the fact that economic liberalization in China began in 1979 while in India it has been a more recent policy shift. It should be noted that the figure presented in Table 1 does underestimate Mumbai’s GDP per capita somewhat as it is based on state-level data.
While recent data is not available, Mumbai’s per capita GDP in the late 1990s was approximately twice that of the state-wide average (Bombay First, 2001). Trade intensity data (exports + imports / GDP) suggest that Mumbai and Shanghai both possess real sectors that are significantly linked to international markets. Their performance in this respect is particularly impressive given that Singapore is a small island city and hence would expectedly have a higher trade dependency than Mumbai and Shanghai, which are geographically part of larger and more resource abundant domestic economies. In terms of comparing macroeconomic policy between the three cities there are two major hurdles.
Firstly, as far as most macroeconomic policies are concerned, such as the money supply and the exchange rate, Mumbai and Shanghai have no independent macroeconomic policy to speak of. As a consequence, we can only look at the macroeconomic policy of India and China as a whole.
Secondly, since there is a wide range of policies that could affect the macroeconomic environment, a summary measure is needed in order to undertake a tractable commentary. To achieve this aim, we make use of the 2003 macroeconomic environment index compiled by the World Economic Forum. According to this index, of the 102 countries considered China ranks in the top quarter while India ranks approximately half way. Both countries lag the world leader Singapore.
Microeconomic Business Environment
To comment on the microeconomic business environment in Mumbai, Shanghai and Singapore, Table 2 presents four relevant indices that are compiled on a national level. These include:
Business Competitiveness Index compiled by the world economic forum.
Index of economic freedom by the heritage council
Economic freedom of the world compiled by the fraser institute
Corruption perceptions Index compiled by transparency international.

WEF 1 HC 2 FI 3 TI 4
Rank Mean Rank Mean Rank Mean Rank
China 46 3.64 128 5.5 100 3.4 66
India 37 3.53 121 6.1 73 2.8 83
Singapore 8 1.61 2 8.5 2 9.4 5

Firstly, because these indices describe countries while IFCs are typically cities, argued that this taints the reality in more progressive cities such as Mumbai and Shanghai. However, many of the policies that can cause an IFC to flounder or flourish are determined at the national level’ such as the basic legal framework. Thus, indices that summarize data on a national level are still clearly relevant for the IFC aspirations of a given city.
Secondly, the objectivity accorded to these indices by the research organizations that publish them is not universally shared (see Wang, 2004 in the case of China). Bearing these potential limitations in mind, two general observations can be drawn from Table 2. Firstly, across all indices India and China rank closely to one another. Thus, while Mumbai and Shanghai may have specific advantages over the other, neither appears to enjoy an overall microeconomic business environment that gives it a distinct lead. Secondly, in three out of the four indices both countries are placed in the bottom half of country rankings and are long way behind the microeconomic business environment in established IFCs such as Singapore.
Financial Sector Efficiency
In terms of financial market size, Mumbai currently holds an advantage over Shanghai with respect to stock markets. This is not surprising given Mumbai’s much longer history of capital market development. the situation is reversed with respect to credit markets and reflects the fact that Shanghai’s financial system was exclusively bank-based until 1991.
Shanghai 1 Mumbai 2 Singapore 3
Stock market 0.27 0.47 1.28
Capitalization/GDP (%)
Total bank loans/GDP 1.94 0.79 1.04
WEF 2002-3 financial 71 41 16
And auditing standards
WEF 2002-3 70 68 8
Prevalence of insider
Trading ranking
No. of foreign listed 0 0 76
Share of Global FOREX <0.1 0.2 6.2 Turnover (%) Foreign banks loans 2 >7.3 –
(% total bank loans)

By size characteristics alone, Shanghai and Mumbai already rate well compared with Singapore. However, in terms of their international orientation, both cities lag considerably. Neither has foreign companies listed on their stock exchanges and the market Share of foreign banks, particularly in Shanghai, remains miniscule. Their meager share of global FOREX turnover also reflects their limited current level of international competitiveness and overwhelming domestic orientation. Finally, India and China rank in the bottom half of countries ranked by the world economic forum regarding financial and auditing standards and the pervasiveness of insider trading.
Can Mumbai become a Shanghai ?
Shanghai’s new construction surges ahead non-stop. This year the city will double its expenditure on urban construction compared with the 2000 level. An estimated USD 6.31 billion will be spent on 76 projects this year, including new railway lines and expressways. All this happens even as we in Mumbai struggle to build a single Worli-Bandra sea link to ease traffic congestion. The essential difference can be seen in the efforts to build a road on top of the existing Peddar Road in Mumbai. There were howls of protests from local residents, who petitioned that the pollution because of the second road would cause harm.
That’s the essential difference between Shanghai and Mumbai, between China and India. One nation decides and does; the other seeks the public opinion and dithers. Or so it mat seem. India’s democratic underpinnings can be a source of pain at times like these. Action is required to move ahead rapidly.
But ask any Indian and not a single one will want to sacrifice the freedom that exists at every level of our society and culture. Rather than being critical of where we are and what we are doing, we need to look at the brighter side of things. Mumbai has seen 50-odd flyovers constructed in the past few years. The malls, software services and business process outsourcing will continue Mumbai’s ascendance in the retail & IT enabled services segment.
One may think of the native city of Bombay, Shanghai’s counterpart in India as old, grubby and crumbling but it is also cosmopolitan, pulsating and vibrant. The chaos is creative. That’s where the software miracle comes from. Mumbai has heart and soul. One will feel little heart and soul in Shanghai. Shanghai is all head, and the head works. The soul may be there, but to a first-time visitor the glitter and consumerism dominate.
The most striking feature about Singapore is its convenience, connectivity and cleanliness, whether it is traveling to or within Singapore. The city is magnificently organized to facilitate its populace. Being the worlds most hygienic city, Singapore is clean and pollution free 24 hours of the day. It is unimaginable that 15 years back they were a third world country, but today Singapore is the second most developed country after the United States of America. Good governance, prevalence of good civic sense, adequate infrastructure to support the population and no political bureaucracy, no red-tapism or corruption is the forte of the Singapore that Mumbai must emulate to become a commercial hub not just for India but for Asia.

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