Shanghai Business Visits Day 1

Monday was our first full day in Shanghai and our first day of business visits. I am curious to see the contrast with the visits we had in Vietnam.

Our first stop was Jones Lang LaSalle, a real estate developer focusing mainly on commercial real estate in Shanghai. This proved to be a very informative visit with a lot of information on not just commercial real estate but retail and the residential market in Shanghai. David Erickson, who presented to us, gave us an interesting overview of the real estate market in Shanghai. Just looking around from the bus on Sunday you could see from the amount of construction that real estate is likely booming in China.

Although his company doesn’t focus on residential real estate he did give us a very comprehensive overview of the residential market in Shanghai. One of the biggest concerns is if Shanghai will face a housing bubble such as what happened in the United States. After hearing the information presented to us I think China is much better positioned to avoid a housing bubble. The Chinese government tightly controls the housing market and the most recent restrictions will aid in avoiding a housing bubble. The government now requires 30% down on all housing purchases and 60% down on second homes. It was also interesting to hear that the majority of mortgages in China are 15-year fixed mortgages and in the rare instance 30-year fixed mortgages. In the US we had a number of a adjustable rate and interest-only mortgages as well as the number of homes that were financed 100%. China still may have some issues ahead of them with the number of homes that are being built but given the controls in place and the tight arm of the Chinese government I don’t think they will experience the housing bubble in the same way the US did.

The commercial and retail markets in Shanghai are booming as well. Just one look down Nanjing Road and you can see all of the development. One interesting statistic that David shared was that 50-70% of the government's revenue comes from the sale of land use rights. There are no upcoming expirations for about 30 years, so it will be interesting in the future to see how China handles this and if they are able to reduce their reliance on land rights sales.

Our next stop was lunch at the World Financial Center, also known as the Bottle Opener building. We had a great lunch at a Dim Sum restaurant, which turned out to be one of our favorite meals in China. With all of the hustle and bustle in China I was surprised at how slow the service is in restaurants. I expect that when I travel to Europe but was surprised by it in China. That is probably why most people take 1.5 hour lunches!

Our afternoon business visit was the one I was looking most forward to on the trip, ShangPharma, a Contract Research Organization. I was expecting that we would be hearing more about outsourcing of clinical trials to China, which is the topic of my research paper for this class. Although that isn’t ShangPharma’s focus, they have an impressive operation for discovery of new molecules. With pharmaceutical companies tightening their belts and cutting Research and Development costs this is a great business model to help pharmaceutical companies focus their efforts. The company is fully staffed with scientists and they are comparable to a small US biotech company. I think this is a great business model as pharma companies cannot succeed without a fruitful pipeline but it takes many tries to find the next Lipitor or Viagra. With R&D taking up significant costs for pharma companies this model provides them a way to still discover molecules but have an outsourced company continue multiple workstreams with reduced costs to the company. I wish we could have toured the facility and seen some of the laboratories but I'm guessing due to intellectual property rights that would be prohibited. I'm not sure that this model exists in the US but I'm planning to do some research to find out. ShangPharma was clearly an impressive and successful operation in Shanghai.

Following a long day of visits we all went to the Shanghai Acrobatic Show. It was very much like a Cirque du Soleil show, a great performance. Afterwards some of headed down to the Bund to get a view of Pudong at night. What an impressive sight, especially at night.

That was followed by one of the best and most cost effective things I did on this trip, a massage. A very relaxing way to end a busy day. More business visits on Tuesday.