Shanghai: Can the Fastest-Growing City in the World Keep it Up?

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Part III of our special report on the most important cities in the world

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If China is, as Jeffrey Sachs has said, the "most successful development story in world history," then Shanghai is the apotheosis of global development. A picture says a thousand words, but in the case of Shanghai, the following two pictures say so much more. The first image below is dated 1990. The second is from 2010. In a city whose GDP grew by double-digits every year for more than 20 consecutive years, this is what transformational growth looks like:

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Without context, you might think of Chinese economic history as a long, sad flat line that suddenly decided to shoot up in after the fall of the Soviet Empire. Nothing could be further from the truth. At various points in history, China's oceanfront cities have been among the most advanced in the world. In the 1920s, Shanghai was known alternatively as the "Athens of th East" and the "Paris of the East." The 1928 photo below explains why. The Bund, the city's famous waterfront, could have been mistaken for a bustling European boulevard -- just as today, the same stretch of road, people, cars and buildings maintains a distinct 21st-century Euro-feel. Shanghai's genesis is truly a renaissance.

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There is a wonderful anecdote in Fareed Zakaria's book, The Post-American World, where he describes two trips to Pudong, to the east of the Shanghai (the city's history is apparently best understood through diptych). In the mid-1990s, the district was mostly farmland. Today it is the global financial center of China, only slightly smaller than the entire city of Chicago, and "densely studded with towers of glass and steel and lit like a Christmas tree every night."

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Even with China's superheroic growth now in question, Shanghai is projected to become perhaps the world's most economically powerful city in the next two decades. Already the size of Finland, the metro's GDP is growing faster than every big city in the world, according to the Brookings Institution. Within the 200 richest cities in the world, only Shenyang achieved faster income growth than Shanghai in 2010 and only Riyadh achieved faster employment growth. By 2025, the McKinsey Global Institute projects that Shanghai will grow faster than every other city, leapfrogging London to become the third richest metro in the world.

Many of the challenges and upsides for Shanghai, and the country in general, are best expressed in our new special report on China growth. Many of the challenges are somewhat inherent to wealth. As China has become richer, it's also become fatter and older. The transition from a state-run capitalist system to a market-driven economy will be one of the history's heaviest balancing acts.

But in the short term, the city has tremendous advantages. It is China's largest destination for college-educated talent. It is a magnet for foreign direct investment. It sits at the center of a network of smaller cities like Pudong. As the national financial and industrial hub, it is the best positioned metro in China, if not the world, to benefit from an expanding global economy powered by traders and trade. Ninety years after earning the title, the "Paris of the East" is poised to have more middle-class families earning more than $20,000 a year than Paris.

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