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Industrial restructuring and the formation of creative industry clusters : the case of Shanghai's inner… Zhong, Sheng 2010

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   INDUSTRIAL RESTRUCTURING AND THE FORMATION OF CREATIVE INDUSTRY CLUSTERS: THE CASE OF SHANGHAI?S INNER CITY  by   Sheng Zhong  B. Eng., Tongji University, 1994 M. Eng., Tongji University, 1998 M.P.P., National University of Singapore, 2001   A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF   DOCTOR OF PHILOSOPHY   in   The Faculty of Graduate Studies  (Community and Regional Planning)  THE UNIVERSITY OF BRITISH COLUMBIA  (Vancouver)   August 2010   ? Sheng Zhong, 2010    iiABSTRACT In the past two decades, Shanghai has seen a wrenching decline of its traditional industrial sector and then a proliferation of new economy spaces on its derelict industrial sites, the most notable of which are over seventy ?Creative Industry Clusters? (CICs) accredited by the Municipal Government. Based on a combination of qualitative and quantitative methods, including case studies, semi-structured in-depth interviews, questionnaire surveys, literature review, site visits and observation, photography and mapping, this research found that the vacant spaces resulting from state-triggered industrial restructuring initially accommodated the spontaneous concentration of avant-garde artists and creative workers, a process that was later superseded by the local state?s deliberate planning of creative clusters with the cooperative efforts of both property interests and restructured state-owned enterprises.   The processes of inner city changes in Shanghai suggest that the city?s urban restructuring followed a post-socialist rather than post-Fordist trajectory, with the local state exerting significant influence on the outcomes of urban transformations. And in the whole process, the local state was not just dominating, but also remained flexible at certain point in time so that social learning could take place to help it guide future transformations. In addition, the formation of CICs in Shanghai also reveals major differences of China?s ?pro-growth coalitions? from its western counterparts. In particular, the Chinese state plays a stronger role while local communities are largely absent from the scene or only temporarily visible. In addition, the dissertation also provides policy recommendations on four inter-woven aspects of Shanghai?s CIC formation, namely social justice, industrial agglomerations, land-use planning and the support for the arts and culture. These four aspects represent the social, economic, physical and cultural dimensions of Shanghai?s CICs respectively.     iiiTABLE OF CONTENTS ABSTRACT .................................................................................................................................. ii TABLE OF CONTENTS ............................................................................................................. iii LIST OF TABLES ..................................................................................................................... viii LIST OF FIGURES ..................................................................................................................... ix LIST OF PHOTOS ....................................................................................................................... x LIST OF ABBREVIATIONS ...................................................................................................... xi ACKNOWLEDGEMENTS ....................................................................................................... xii DEDICATION ............................................................................................................................. xv 1 INTRODUCTION ................................................................................................................ 1 1.1 The Origin of CICs ............................................................................................................... 2 1.2 Research Questions ............................................................................................................... 3 1.2.1 Research Questions ........................................................................................................ 3 1.2.2 Defining Creative Industry (Clusters) ........................................................................... 6 1.3 Methodology ....................................................................................................................... 15 1.3.1 Case Studies ................................................................................................................. 15 1.3.2 Interviews ..................................................................................................................... 16 1.3.3 Questionnaire Surveys ................................................................................................. 17 1.3.4 Other Methods ............................................................................................................. 17 1.4 Organization of the Dissertation ......................................................................................... 18 2 THEORETICAL DEBATES ON URBAN RESTRUCTURING: WESTERN PERSPECTIVES ........................................................................................................................ 20    iv2.1 Urban Restructuring in the Inner City ................................................................................ 20 2.1.1 Industrial Restructuring............................................................................................... 21 2.1.2 Social Reconstruction .................................................................................................. 25 2.1.3 Physical Changes ........................................................................................................ 28 2.2 Cultural Economy of Cities ................................................................................................ 29 2.2.1 Understanding Agglomerations and Clustering .......................................................... 30 2.2.1.1 Thesis of Flexible Specialization .......................................................................... 31 2.2.1.2 Thesis of Transaction Costs and External Economies .......................................... 32 2.2.1.3 Thesis of Untraded Interdependencies .................................................................. 34 2.2.1.4 Thesis of Knowledge Creation, Learning, and Innovation ................................... 36 2.2.1.5 Thesis of Industrial District?A Synthesis ........................................................... 43 2.2.1.6 Summary: A Relational Geography ...................................................................... 45 2.2.2 The Cultural Economy of Cities .................................................................................. 46 2.2.2.1 Debate on Culture and Commerce ........................................................................ 47 2.2.2.2 Consumption and Consumer Culture.................................................................... 49 2.2.2.3 Cultural Industries and Their Spatial Dynamics ................................................... 52 2.2.2.4 Cultural Economy and Urban Regeneration ......................................................... 58 2.2.2.5 A Closer Look at Bohemian Artists ...................................................................... 60 2.2.2.6 Cultural Industries and Globalization ................................................................... 61 2.3 Summary ............................................................................................................................. 63 3 THEORIES ON ROLES OF THE CHINESE STATE IN URBAN TRANSFORMATIONS ............................................................................................................. 64 3.1 State and Economy ............................................................................................................. 65 3.1.1 Production Sphere ....................................................................................................... 66 3.1.1.1 State-owned Enterprises: Enhanced Autonomy .................................................... 66 3.1.1.2 Developmental State, State Entrepreneurialism and Growth Coalitions: Symbiotic    vState-Business Relationships ............................................................................................ 68 3.1.2 Consumption Sphere .................................................................................................... 72 3.2 State and Society ................................................................................................................. 73 3.2.1 Perspectives of State Domination ................................................................................ 74 3.2.2 Perspectives of State Incapacitation ............................................................................ 75 3.2.3 Perspectives of State-Society Inter-penetration and Ambiguity .................................. 78 3.3 Summary ............................................................................................................................. 82 4 FROM CRADLE OF INDUSTRIALIZATION TO CREATIVE INDUSTRY CLUSTERS ................................................................................................................................. 84 4.1 Background ......................................................................................................................... 84 4.2 Shanghai?s Industrial Development before 1949 ................................................................ 88 4.2.1 Industrial Development ............................................................................................... 88 4.2.2 The Spatial Dimension ................................................................................................. 94 4.3 Shanghai?s Industrial Development between 1949 and 1978 ............................................. 97 4.3.1 Industrial Development ............................................................................................... 97 4.3.2 The Spatial Dimension ................................................................................................. 98 4.4 Shanghai?s Industrial Restructuring in the Economic Reform Era ................................... 101 4.4.1 Industrial Restructuring............................................................................................. 101 4.4.2 The Spatial Dimension ............................................................................................... 105 4.5 Summary ............................................................................................................................ 112 5 FROM FABRICS TO FINE ARTS: THE FORMATION OF ART DISTRICT M50 (CASE I) ..................................................................................................................................... 113 5.1 Prelude: Shanghai Industrial Restructuring and Suzhou Creek Art Warehouses .............. 114 5.2 50 Moganshan Road: an Emergent Art District by Accident ............................................ 118 5.3 Restructuring of 50MGS: Another Thread of the Story ................................................... 120    vi5.4 Voices from Scholars: Conservation of Industrial Heritage ............................................. 127 5.5 ?Creative Industry Cluster?: Recognition from the Government ..................................... 136 5.6 Commercialization: Growing Pains .................................................................................. 140 5.7 Achilles Heels: The Unresolved Issue of Land Use Incompatibility ................................ 145 5.8 Post-CIC Endeavors: Venturing into Creative Industries ................................................. 149 6 NEW WINE IN OLD BOTTLES: RED TOWN INTERNATIONAL CULTURAL AND ART COMMUNITY (CASE II) .............................................................................................. 152 6.1 Background: Restructuring of Shanghai No. 10 Steel Factory ......................................... 153 6.2 Shanghai Sculpture Space: A Brocade Ball from the Government .................................. 159 6.3 Implementing the SSS Project: Public Private Partnerships............................................. 163 6.4 Red Town International Cultural and Art Community: Commercial Maneuvering ......... 171 6.5 Perception of Visitors: Public Space or Private Domain? ................................................ 190 6.6 Bund 1919?A Sequel to Red Town ................................................................................. 194 7 BEING THERE: A SURVEY OF SPACE USERS ......................................................... 197 7.1 Introduction ...................................................................................................................... 197 7.2 Company/Enterprise Profiles ............................................................................................ 203 7.3 Location Decisions ........................................................................................................... 210 7.4 Cluster Ecology ................................................................................................................ 223 7.5 Space Use and Urban Planning......................................................................................... 241 8 CREATIVE INDUSTRY CLUSTERS IN SHANGHAI: A SYNOPTIC ANALYSIS 253 8.1 M50 and Red Town: A Comparison ................................................................................. 254 8.2 Formation of CICs: An Institutional Analysis of Major Players ...................................... 260 8.2.1 The State .................................................................................................................... 261 8.2.2 The Economic Sector ................................................................................................. 264 8.2.3 The Non-Economic Sector ......................................................................................... 275    vii8.2.4 Contingent Factors and Local specificities ............................................................... 284 8.2.4 A Summary ................................................................................................................. 286 9 INDUSTRIAL RESTRUCTURING AND FORMATION OF CICS: THEORETICAL AND POLICY IMPLICATIONS ............................................................................................ 289 9.1 Theoretical Implications ................................................................................................... 290 9.1.1 Post-Socialist, Not Post-Fordist Transformation ...................................................... 290 9.1.2 Dominating and Flexible Roles of the Chinese State ................................................ 294 9.1.3 State-defined Vision of Modernity .............................................................................. 297 9.1.4 Pro-growth Coalitions with Chinese Characteristics ................................................ 300 9.1.5 Social Learning: Toward a Holistic Framework of Analysis .................................... 303 9.2 Policy Recommendations ................................................................................................. 306 9.2.1 Social Justice ............................................................................................................. 307 9.2.2 Industrial Agglomerations .......................................................................................... 311 9.2.3 Land-use of Inner-city Industrial Sites ...................................................................... 315 9.2.4 Supporting Art and Culture ....................................................................................... 317 9.3 Concluding Remarks ........................................................................................................ 319 BIBLIOGRAPHY ..................................................................................................................... 321 APPENDICES ........................................................................................................................... 342 Appendix I: Classification of Major Creative Industry Sectors in Shanghai ......................... 342 Appendix II: List of CICs in Shanghai ................................................................................... 349 Appendix III: Shanghai?s Industrial Development in Reform Period .................................... 356 Appendix IV: Questionnaire Design (Translated version) ...................................................... 362 Appendix V: Preferential Policies on CICs and Creative Firms at District Level in Shanghai ................................................................................................................................................ 380 Appendix VI: Certificate of Approval of Research Ethical Review ....................................... 383?   viiiLIST OF TABLES  Table 7.1: Response Rate of the Survey ..................................................................................... 202 Table 7.2: Organizational Form of Firms ................................................................................... 204 Table 7.3: Number of Formal Employees in the Firms .............................................................. 205 Table 7.4: Number of Temporary Employees ............................................................................ 205 Table 7.5: Products and Production of Firms (N=95) ................................................................. 207 Table 7.6: Degree of Success ...................................................................................................... 209 Table 7.7: Why Locate in that Cluster? ...................................................................................... 217 Table 7.8: Importance of Location Decisions ............................................................................. 221 Table 7.9: Level of Location Satisfaction ................................................................................... 221 Table 7.10: Locations of Major Suppliers .................................................................................. 224 Table 7.11: Locations of Major Business Partners ..................................................................... 224 Table 7.12: Locations of Major Institutional Clients/Customers ............................................... 225 Table 7.13: Locations of Major Final Customers ....................................................................... 225 Table 7.14: Mean Scores for Different Types of Communications............................................ 227 Table 7.15: Average Percentage of Employees from Certain Geographic Areas ...................... 228 Table 7.16: Percentage of Firms with Employees from Overseas .............................................. 229 Table 7.17: Ways of Recruitment ............................................................................................... 232 Table 7.18: Sources of Creativity ............................................................................................... 235 Table 7.19: Organizations that Could Benefit Firms .................................................................. 237 Table 7.20: Organizations that were Accessible to Firms .......................................................... 238 Table 7.21: Rental Levels at the Four CICs ............................................................................... 241 Table 7.22: What Firms Would Do if They Were Forced to Move ........................................... 245 Table 7.23: Evaluation of Planning Measures (in percentage) ................................................... 248 Table 8.1: Major Differences between M50 and Red Town in Terms of Cluster Formation ..... 257 Table 8.2: Formation of CICs?Institutional Decomposition .................................................... 287     ixLIST OF FIGURES Figure 1.1?Illustration of Scope of Research ............................................................................. 14 Figure 6.1: Layout of Red Town International Cultural and Art Community (including Shanghai Sculpture Space) ................................................................................................................. 164 Figure 6.2: SSS and Red Town International Cultural and Art Community Project .................. 184 Figure 7.1: Value of Products offered by Firms (N=118) ........................................................... 208 Figure 7.2: Why Locate in Shanghai? ......................................................................................... 211 Figure 7.3: Why Locate in that Cluster ...................................................................................... 214 Figure 7.4: Ways of Recruitment for Firms (All Samples) ........................................................ 230 Figure 7.5: Sources of Creativity (All Samples, N=94) ............................................................. 234 Figure 7.6: Whether Firms are Facing Rental Increases............................................................. 243 Figure 7.7: Relocation Choices of Firms if Rents Become Too High (N=100) ......................... 244 Figure 7.8: Evaluation of Planning Measures (All Samples) ..................................................... 247 Figure 7.9: Overall Impact of Demolition on Firms (N=119) .................................................... 250 Figure 7.10: Relationships between New Property Development in the Surrounding Area and the Future Prospects of CICs (N=120) ..................................................................................... 251 Figure 8.1: Formation of CICs?Institutional Decomposition ................................................... 288     xLIST OF PHOTOS Photo 5.1: Graffiti Wall and New High-rise Apartment Buildings in Moganshan Road Area ... 132 Photo 6.1: Shanghai No. 10 Steelworks under Construction (1950s) ........................................ 153 Photo 6.2: Production at Shanghai No. 10 Steelworks (1950s) .................................................. 154 Photo 6.3: The Front Fa?ade of Shanghai Sculpture Space?Retaining the Authenticity of Buildings ............................................................................................................................. 174 Photo 6.4: Building B of SSS (2006) ......................................................................................... 177 Photo 6.5: Building B of SSS (2009) ......................................................................................... 178 Photo 6.6: Building B of SSS?Public Exhibitions Downstairs, Commercial Tenants Upstairs 179 Photo 6.7: Building B of SSS?Exhibition Space or Office Space? .......................................... 180 Photo 6.8: Building E, F and G (2006) ....................................................................................... 182 Photo 6.9: Building E, F and G (2009) ....................................................................................... 183 Photo 6.10: Landscape Design?Conservation of History? ....................................................... 193 Photo 6.11: Entrance to Red Town ............................................................................................. 196 Photo 8.1: Exterior of a CIC?Creation ..................................................................................... 268 Photo 8.2: Exterior of a CIC?X2 Creative Space ..................................................................... 269 Photo 8.3: Exterior of a CIC?Space 188 .................................................................................. 269 Photo 8.4: Exterior of a CIC?The New Factories ..................................................................... 271 Photo 8.5: Manu of a Restaurant at a CIC?New Factories ....................................................... 272 Photo 8.6: A Cafeteria at a CIC?Fashion Street LOFT ............................................................ 273 Photo 8.7: Gate of a CIC?UDC Innovative Plaza .................................................................... 283 Photo 8.8: Gate of a CIC?E Warehouse ................................................................................... 283     xiLIST OF ABBREVIATIONS ADC: Artists/Designers? Confederation CIC: Creative Industry Cluster CSCS: City Sculpture Committee of Shanghai DCMS: (The British) Department of Culture, Media and Sport DCSLM: Department of City Sculpture and Landscape Management EHB: Excellent Historic Buildings EID: Eastern Industrial District OCSCS: Office of City Sculpture Committee of Shanghai PTCSS: Planning Team for City Sculpture of Shanghai RCNHC: Research Center for National Historic Cities SASS: Shanghai Academy of Social Sciences SCIC: Shanghai Creative Industry Center SCSC: Shanghai Chunming Slub Corporation SID: Sothern Industrial District SMDRC: Shanghai Municipal Development and Reform Commission SOE: State-Owned Enterprise SSS: Shanghai Sculpture Space  SUPAB: Shanghai Urban Planning Administration Bureau WID: Western Industrial District  50MGS: 50 Moganshan Road (the site of M50)    xiiACKNOWLEDGEMENTS It seems impossible for me to list all the people who have contributed in one way or another to this PhD dissertation. Working on a PhD degree in the past five years has been a painstaking, enjoyable and rewarding experience for me. And at each stage, I got exceptional guidance and assistance from people around me. I am bound at least to attempt to acknowledge my thanks to those who have helped me to get so close to the finishing line today.   I would like to acknowledge Honorary Prof. John Friedmann. His classes were enlightening and the many discussions held between us on China?s urban and planning issues were thought-provoking. As the first reader of this dissertation, he not only provided me with many constructive comments, but also did tedious editing work. In addition, over the years, John has been giving me encouragements and other kind of spiritual support that had helped me overcome the frustrations encountered during the course of my PhD study. He is both my academic and life mentor.   I would also like to thank my advisor Prof. Tom Hutton. It was he who first drew my attention to Shanghai?s emergent new economy spaces in the inner city, a domain of research that has turned out to be exceptionally interesting. In addition, Tom also provided me with guidance on my area of research as well as introduced me to other scholars in the same field. I am grateful also to two other members in my supervisory committee, A/Prof. Michael Leaf and Prof. Fulong Wu (from School of City and Regional Planning, Cardiff University). The progress I made at each stage of my PhD study is indispensible to their useful comments and feedbacks on my work.    Thanks also go to my fieldwork sponsor, Shanghai Tongji Urban Planning and Design Institute (STUPDI). Without STUPDI?s administrative assistance, fieldwork in Shanghai would not have    xiiibeen possible. In particular, I would like to mention Prof. Jian Zhou, Director of STUPDI and Mr. Ke Zhou, Director of the Department of Research of STUPDI, for offering me the convenience in using the Institute?s resources and facilities. They were also helpful in putting me into contact with many interviewees in Shanghai. In addition, I also enjoyed stimulating conversations with many professors and scholars in Tongji University, including, Prof. Min Zhao, Prof. Yisan Ruan, Prof. Song Zhang, Ms Yiping Dong, Dr. Huaiyun Kou, Dr. Li Hou and so on.   During the course of my fieldwork, I gained knowledge and wisdom from many people involved in Shanghai?s creative industry clusters, most of whom I quote anonymously in the dissertation. I am very thankful for their time, patience, enthusiasm and helpfulness. I would also like to give my special thanks to Ju Huang, Jianfeng Li, Yuxin Liu, Feiqiong Wu, Huang Huang, Yanyu Yang, Jiaqi Xie, Huimin Cai, Baoyuan Jiang and many others, who were always ready to lend me a helping hand in various capacities during my stay in Shanghai.   In addition, I also want to acknowledge the following Professors who provided constructive comments on an earlier version of this dissertation: Prof. Tingwei Zhang (University of Illinois at Chicago, the external examiner), Prof. Trevor Barnes, Prof. Jamie Peck (both from the Department of Geography at UBC and served as members in my examination committee), and Prof. Graham E. Johnson (from the Department of Sociology at UBC and served as the chair of my Ph.D. final defence) . Their thought-provoking comments and questions not only helped me complete this final version of Ph.D. dissertation, but also pointed out new frontiers of my future researches.   It is also important to acknowledge the School of Community and Regional Planning in the University of British Columbia. The School provides a stimulating and nurturing environment for me to pursue my academic endeavour. Lessons and talks given by the professors enriched my    xivknowledge in planning. I also benefitted both intellectually and emotionally from formal or informal talks with my peer PhD students, who were always ready to share joys as well as sorrows with me. Thanks should also be given to UBC, the BC provincial government as well as the Social Sciences and Humanities Research Council of Canada for their generous funding that had enabled me to complete this PhD research.   Finally, I would like to thank my family for their staunch support over the past several years. In particular, I would like to thank Nicole, my beloved daughter, for her tolerance of my long-time absence. Staying with mom is something usually taken for granted by kids but is quite often a luxury for her. In the past five years, despite the difficulties of overcoming physical distance, she has been a spiritual support to me, though quite unwittingly, so much so that I could courageously tide over difficulties after difficulties in my pursuit of the high degree of learning. Therefore,?would like to dedicate this dissertation to her.     xvDEDICATION     TO NICOLE   11 INTRODUCTION  ?Ten years ago, we were looking for new office towers; but now we are interested in office spaces with history and taste (weidao).?  ? Partner in an architectural firm1    Shanghai City has undergone waves of tremendous change over the past one and a half centuries. From a feudal regional commercial center to an adventurer?s paradise in a semi-colonial setting, it transformed into a socialist citadel focusing on industrial production. At present, it is categorized as a post-socialist international metropolis. The trajectory of the city has been characterized as one of constant restructuring and transformation. Brenner speaks of urban restructuring as ?a process in which the very nature of cities?as sites of production, consumption, settlement, regulation and contestation?is reorganized and transformed,? and it is through such processes that ?the ?city-ness? of those spatial units? is continually remade.? (2009, p. 37). Hence, this dissertation delves into Shanghai and its latest urban restructuring with a view to uncover the city?s unique development trajectory.    While urban restructuring has many dimensions and involves multiple narrative forms, this research focuses on the economic and social transformations of a central spatial unit that is officially termed ?creative industry clusters? (CICs). CICs are reconfigured spaces of production and consumption, a phenomenon by which the city has witnessed its proliferation over the past several years. By the end of 2009, there were a total of 75 CICs in Shanghai2. This research                                                  1 Anonymous Interview, June 8, 2009. 2 There are far more new economy spaces in the city than in the 75 clusters recognized by the Municipal Government. However, my research only looks at the officially designated creative industry clusters because these CICs can help shed light on these clusters without official titles, while providing insights into the roles of the state. In addition, official titles can always generate bandwagon effects, and examining these official CICs can help explain the fast proliferation of new economy spaces within the    2explains why such spaces suddenly appear appealing to firms (usually in the creative industries), middle-class consumers as well as the local state and how they came into being under China?s unique institutional context. In this chapter, I will first give a brief introduction on the phenomenon of Shanghai CICs, and then followed by explanations for the research questions. The methodologies used in the research are also discussed. Finally, I will briefly discuss how this dissertation has been organized.    1.1 The Origin of CICs  Since Shanghai was forced open by Western powers in 1843, it has rapidly accumulated industrial capital under the influence of both foreign and domestic interests. By the early 20th century, the city was known as the country?s most important industrial and financial center. Following the establishment of the People?s Republic of China in 1949, national development policies imbued with a heavy industry orientation reinforced the position of Shanghai as the leading industrial city in China. Many of the old industrial sites were transformed into industrial bases for the new socialist economy.   Shanghai?s postwar industrialization, however, has been compromised by a combination of forces, including obsolescence and policy factors. The latter include industrial restructuring programs implemented by the Shanghai Municipal Government since the mid-1980s and the new emphasis on finance, trade, advanced services, and other global city functions. In the 1990s, more than 1,000 industrial firms were either closed down or relocated to the suburbs (Shanghai Economic Commission and Shanghai Communist Party History Research Office, 2002, p. 96). Old industrial areas became marked by employment losses, deteriorating landscapes, and lackluster economies.                                                                                                                                                              city in general. In this dissertation, CICs means creative industry clusters designated by Shanghai Municipal Government.     3This change presented a stark contrast to the financial and commercial center of the city that had been enjoying an unprecedented economic boom and a heightened global image, largely resulting from foreign investment and international influences.   Amidst this post-industrial decline, a number of freelance artists helped revalorize the old industrial spaces in Shanghai. Initial sporadic actions were later followed by concerted and deliberate efforts in the ?making? of such new economy spaces that involved parties with diverse interests. Presently, there are many of such sites, most of which are located at the old industrial sites in the inner city3. The most notable of these are over 70 so-called CICs accredited by the Municipal Government, who view these centers as a solution to the woes of bankrupt companies and a means to invigorate derelict inner city industrial spaces.   1.2 Research Questions 1.2.1 Research Questions  The latest post-industrial transformation of the inner city of Shanghai poses important theoretical and policy questions. The development trajectory of the inner city in advanced economies has been well documented by Zukin (1982, 1995), Hamnett (2003), Ley, (1996), Hutton (2004a, 2008), Indergaard (2004), Lloyd (2005), and Fujita and Hill (1993). Shanghai seems to have repeated the phenomena observed in many cities; however, the distinctiveness and the complexity of Shanghai?s experience are also quite striking. Many scholars involved with urban-study of Chinese cities have stressed the uniqueness of China?s urbanization processes, particularly                                                  3 The concept of ?inner city,? understood as part of the metropolitan core of former industrial cities, is based on a city prototype in the ?Atlantic Core? (Hutton 2004b, 2008). For lack of an equivalent theoretical term for Chinese industrial cities, I use the term ?inner city? here to refer to the old industrial sites and their surrounding areas (e.g., residential areas for old industrial workers) in the central city of Shanghai, although it must be noted that there is substantial difference between the Chinese and Western urban forms.    4because of the transformation from state to market socialism (e.g., Ma, 2002; Lin, 2007; Shen, 2007). Shanghai is a city with an entrenched socialist legacy. Not only are the CICs in Shanghai mostly controlled by state-owned enterprises (SOEs), it is also here that the industrial land in the inner city has been fully administrated in the socialist period. The unique land ownership arrangements in Shanghai (as well as in other Chinese cities) determine the different usage of urban spaces and the path of transformation. Moreover, compared to its Western counterparts, the Chinese state generally plays a completely different approach in urban development because it has an interventionist tradition and works within a fundamentally different political economic system. These institutional differences imply that urban processes in Shanghai have their own causes and trajectories. Therefore, there is an urgent need to interrogate existing Euro-American-centric theories of urban restructuring and transformations in the study of Shanghai.   Furthermore, the examination of Shanghai?s CICs not only affords insights into the ongoing urban processes in China, it can also shed light on the relationships among government institutions, firms, and people in contemporary Chinese society. This theoretical domain has drawn much attention from scholars who focus on broader disciplines of China studies. The significance of studying CICs outweighs the mere understanding of Chinese cities or their restructuring because it can enrich our knowledge on Chinese society in general.       From a normative perspective, creative industries and CICs have both penetrated Shanghai?s policy discourse in recent years4. Examining the social-economic impacts of the latest transformations in Shanghai can aid in policymaking, particularly in the areas of local economic development and inner city planning. In addition, as Shanghai is the oldest and the largest                                                  4 For example, the Shanghai Municipal Government had initiated policy studies of creative industries and creative industry clusters, resulting in the publication of several books. See Shanghai Economic Commission an Shanghai Creative Industry Center (2005), Shanghai Creative Industry Center (2006a, 2006b). An in the city?s ?Eleventh Five-Year Plan? passed in 2006, creative industries were listed as high growth sectors. In 2008, the Economic Commission of the Municipal Government passed ?Regulations Regarding the Designation of Creative Industry Clusters (Trial Implementation)? (http://www.shec.gov.cn/shec/jsp/zfxxgk/zfxxgkml-1.jsp?id=27908, accessed June 8, 2009).    5industrial city in China, its restructuring experience can provide lessons for other industrial cities in China.   An emergent urban phenomenon, CICs have caught the attention of many researchers. Numerous exploratory studies have been conducted by researchers from various disciplines. A critical review of these studies suggests that most researchers have approached the issue from the perspectives of architectural design and conservation (Dong, 2004; Song, 2007), urban historic conservation (Gu, 2003; L?, 2006), property development and management (Geng, 2007), and local economic development (Yu, 2007; Xiang, 2005; Tao Zhang, 2006; He, 2006). Despite the rich information provided by existing research, data gaps need to be addressed. First, virtually no attention has been paid to urban processes. Most research has focused on cross-sectional analysis, while neglecting the temporal dimension of CIC development. Second, most studies fail to address the institutional complexities of CIC formation. Very few studies have analyzed the roles of major players and their interplays in the formation of CICs. Discussion on restructuring SOEs, a major institutional player, is virtually non-existent. Third, academic attention has been mostly devoted to physical and economic aspects, while the social dimension of CIC development has been neglected. No research has addressed the issue of social equity or social justice in space provision or space usage. Fourth, although a number of studies have focused on the agglomerative economy of CICs, most of the discussions have been provided from the abstract level, and have failed to provide sufficient details on tenant firms, such as space usage or business linkages. In fact, theories on industrial agglomeration have been mistaken by several researchers as empirical realities.    The gaps left by existing research on Shanghai CICs underlies Lin?s (2004) claim that there is a deficiency in the knowledge on the fundamental processes of urban transformation unfolding in China and their implications for planning and policymaking (2004, p. 143). Therefore, this present study frames the following research questions:         6 How are creative industry clusters formed on the post-industrial sites in the inner city of Shanghai? How should urban planners respond to the emergent creative industry clusters?   It must be added that the term ?post-industrial? used for the research questions only refers to the present status of the old industrial land: the old manufacturing sector no longer exists. However, it does not suggest, in a larger sense, that the status of the society is post-industrial, as it has been observed in many advanced economies (Bell, 1973). Resolving whether the Shanghai has entered a post-industrial stage is a fundamentally different research question. The present study focuses on the transformation of individual industrial sites in the inner city rather than the industrial structure of the city as a whole, although the former may help shed light on the latter. As far as existing literature is concerned, based either on the study of the city?s labor force (Li and Wu, 2006) or on its economic structures (L. Zhang, 2003), there is no clear evidence to suggest that Shanghai has truly entered a post-industrial era.     1.2.2 Defining Creative Industry (Clusters)  Clarifying the definitions of ?creative industry? and ?cultural industry? are necessary because these determine the subject matter under investigation. In the following segments, I will first look at the sources of the two terms. Second, I will discuss a few definitions of the terms as used in Western literature. Finally, I define these terms in the context of the situation in Shanghai.  The term ?culture industry? was first used by Adorno and Horkheimer of Frankfurt School to suggest the marriage of culture and commerce that, historically, had largely been separated    7(Adorno, 1990; Garnham, 2005)5. Later, French sociologists (e.g., Mi?ge, 1987) used the plural form, ?cultural industries,? to suggest diversity and complexity in the sector (Hesmondhalgh, 2002). Unlike cultural industries, which is a conceptual construct, Pratt (2005) utilized creative industries as a political construct (i.e., a term referred to by the British New Labour Government since 1997 to distance themselves from the Old Labour). The change of term was in response to the ascendance of the knowledge economy and information society, as well as the marketization and managerial shift of cultural policies that stressed intellectual properties of cultural industries (Pratt, 2005; Garnham 2005). In the beginning, there was no intention to differentiate the scope of economic activities implied by the two terms, as the UK government simply ??branded? the cultural industries as the creative industries? (Jeffcutt and Pratt, 2002, p. 227)6. The term ?creative industries? is merely a ?slogan? and of little analytical value per se; thus, Pratt (2005) prefers to use cultural industries. However, some researchers use the two terms interchangeably (e.g., Drake, 2003; Hall, 2000; Hitters and Richards, 2002; Miles et al., 2004). In addition, scholars may also use the two terms for different conceptualizations. Garnham (2005) suggests that creative industries also incorporate information technology industries, which are not generally included in cultural industries. Meanwhile, Hesmondhalgh (2002) adds some craft-based industries to creative industries, but not to cultural industries. Overall, there is no consensus in existing literature on the accurate meanings of the two terms, and many scholars explicitly acknowledge the trickiness in their definitions, particularly at the margins of categories (Drake, 2003; Hesmondhalgh, 2002).                                                  5 Although the origin of the term ?culture industry? can be traced back to the Frankfurt School?s critique of the capitalist mode of culture production, this research is not wholly based on such a normative judgment. The focus of my research is the formation of creative/cultural industry clusters, rather than the nature of cultural industries per se. The theoretic critiques advanced by the Frankfurt School have been attacked by many scholars who see a more benign (though problematic) role by commerce in cultural production (Garnham, 1987; Hesmondhalgh, 2002; Scott, 2000a), particularly in the practical and empirical sense. In contrast, the current meaning of ?cultural industries? has been expanded beyond the mass culture that was first conceptualized by Adorno and Horkheimer (see Scott, 1997, 2000a), incorporating a wide range of design-related industries that were traditionally in the commercial realm. In addition, historically, the local culture (haipai) of Shanghai has been highly commercialized and has, in reality, showed more vitality than the ?art-for-art?s-sake? traditional Beijing culture (jingpai) (Cochran, 1999; Lu, 1999a, 1999b; Z. Zhang, 1990). Therefore, the critique of culture industry by the Frankfurt School, though theoretically and philosophically enlightening, does not in my opinion constitute a strong case for taking normative attitude against such industries in Shanghai?s context.    6 Garnham (2005) thinks that the term ?creative industries,? together with related terms such as ?copyright industries,? ?intellectual property industries,? ?knowledge industries,? or ?information industries,? serves a rhetorical purpose within policy discourses.    8Despite this ambiguity, the author will review a few proposed definitions7 that attempt to conceptualize various aspects of the shared properties of creative (or cultural) industries.        The British Department of Culture, Media, and Sports (DCMS) defines creative industries as ?those activities which have their origin in individual creativity, skill, and talent, and which have a potential for wealth and job creation through the generation and exploitation of intellectual property.? Key sectors include content, design, heritage and tourism, and performing arts (Hall, 2000; Jeffcutt and Pratt, 2002; UK Creative Industries Task Force website8). While this definition stresses both the inputs (creativity, skills, and talents) and outputs (intellectual property) of the industries, it does not adequately conceptualize the exact products at hand. Meanwhile, the term ?intellectual property? is too broad; therefore, DCMS?s definition is criticized by Drake (2003) as unclear from the perspective of research because most, if not all sectors, could be included in such a definition.   Garnham (1987) stresses both the organization of production and the nature of outputs. He defines cultural industries as ?those institutions in our society which employ the characteristic modes of production and organization of industrial corporation to produce and disseminate symbols in the form of cultural goods and services, generally, although not exclusively, as commodities? (p. 25). Newspapers, publishing, record companies, music publishers, and commercial sports organizations are considered core cultural industries. These industries produce goods or services that require constant attention from consumers during consumption and are therefore time-consuming.                                                       7 There are many more definitions than can be reviewed in this prospectus. Those mentioned here are widely quoted and deemed as representative. Some definitions not reviewed largely overlap with those discussed, such as the definitions offered by Hitters and Richards (2002), Pratt (quoted by Hall, 2000), Gospodini (2006).   8 See http://www.britishcouncil.org/arts-creative-industries-definition.htm (accessed December 6, 2006). Relevant information can also be found at http://webarchive.nationalarchives.gov.uk/+/http://www.culture.gov.uk/PDF/ci_fact_file.pdf (accessed May 10, 2010)    9Hesmondhalgh (2002) defines cultural industries as institutions mostly involved in the production of social meaning (p. 11). His focus is on a core of cultural industries that are involved in the making and circulating of texts that influence our understanding of the world (called ?media industries?9). The word ?text? should be interpreted broadly, as it not only includes written texts, but also sound or visual images. According to Hesmondhalgh, cultural industries not only ?report,? they also help constitute people?s inner selves (i.e., fantasies, emotions, and identities) (p. 3). The creativity of cultural industries lies in their manipulation of symbols for entertainment, information, or enlightenment (p. 4).  The definitions provided by Garnham (1987) and Hesmondhalgh (2002), although not identical, both focus on the format of products, and are quite narrow in scope. They only include a core of cultural industries that primarily produce mass culture. The definition of Scott (2005) is much more inclusive. His theorization stems from the perspective of the nature of products and, more importantly, their value for consumers. In Drake?s (2003) words, Scott?s definition focuses on the demand side. As Scott (2005) writes, ?[t]he cultural economy can be broadly described as a group of sectors (equivalently, cultural products industries) that produce goods and services whose subjective meaning, or more narrowly, sign-value to the consumer, is high in comparison with their utilitarian purpose? (p. 3). With slight difference, Scott (2006b) also suggests that the creativity embodied within cultural industries is ?not so much in the form of higher efficiency as in greater novelty.? Scott (2005) acknowledges that there exist no hard lines separating pure utilitarian or cultural products. Conceptually, it is more appropriate view industries in terms of a continuum of sectors with a different combination of symbolic and utilitarian purposes. This argument also points to the difficulty of obtaining an unequivocal list of cultural industries. In general, Scott (1997, 2000a) divides cultural industries into three groups: (1) design-intensive                                                  9 The core cultural industries identified by Hesmondhalgh (2002) include the advertising and marketing, broadcasting, film, the Internet and Web-based, music, print and electronic publishing, and video and computer game industries. He considers the sports, consumer electronics/cultural-industry, hardware, software, and fashion industries borderline cases.    10manufacturing or neo-artisanal sector, such as clothing, furniture, and jewelry; (2) services involving personalized transaction or the information production or transmission, such as tourism, live theater, and advertising; and (3) a hybrid form, combining physical production with services, such as music recording, book publishing, and film production. These three groups represent a much broader spectrum of industries than what most other theorists conceptualize. According to Scott, cultural industries are highly heterogeneous; they have different technologies, transactional arrangements, employment profiles, products, and so on. However, what binds them together is that the products function, at least in part, as personal ornaments, modes of social display, forms of entertainment and distraction, or sources of information and self-awareness; therefore, the psychic value (i.e., aesthetic, semiotic, and symbolic) represents their very usefulness to the consumers (Scott, 2000a; Lash and Urry, 1994; Molotch, 1996). Lash and Urry (1994) also highlight a particular type of cultural production that tends to be neglected by many theorists. In certain industries, particularly those providing consumption-based services, what is offered on site is not simply the service per se, but also the physical and semiotic context (ambiance of a restaurant, a gallery, etc.) within which the services are offered. The production of such context can add to the cultural dimensions of the services offered. In this regard, the definitions offered by Garnham and Hesmondhalgh are clearly deficient.   Pratt (2005) raises both breadth and depth questions for cultural industries. The breadth issue deals with the included industries. There is high degree of agreement on a core of the cultural industries (e.g., fine arts, music, film, and others). In contrast, opinions on computer games, sports, or tourism could differ. This issue is quite clear when considering definitions offered by different scholars. The depth issue tends to be neglected by other scholars because each deals with different segments of the value chain. For example, should cultural industries only include the part that deals with creation or production of culture (e.g., content production), or should reproduction, distribution, or related education or critique services be included? None of these issues has been    11explored by the existing literature.  There is still a lack of consensus on the definitions; thus, a few characteristics for creative industries can be summarized in order to distinguish them from traditional manufacturing industries or low-end services: (1) the production involves creating something new (new forms, new contents, new opinions, etc.); (2) the products (goods or services) are usually produced in small amounts (on many occasions, they are one-off products), non-standardized, and differentiated; and (3) knowledge and technology mediated by human creativity, rather than physical materials or labor, are usually the most important inputs for final products. For cultural industries specifically, they involve the commodification of symbols, signs, and meanings.   The absence of a clear-cut definition of creative or cultural industries in literature, however, should not be a major obstacle in conducting this research. As Bell (1973) writes, ?A conceptual schema selects particular attributes from a complex reality and groups these under a common rubric in order to discern similarities and differences. A logical ordering device, a conceptual schema is not true or false but either useful or not? (p. 9). Attributes used in making definitions (i.e., inputs, outputs, or values to consumers) are selected differently by individual researchers; therefore, for them to arrive at different conceptual schemes is only natural. Debating which definition is more accurate is not useful for the present study; rather, considering the purpose of individual research, and scrutinizing whether a certain conceptualization is appropriate for that purpose, would be more rational. As argued by Pratt (2005) and Drake (2003), definitions should be situational and contextual. Based on such an understanding, I will turn next to the context of Shanghai and discuss how creative industries defined in specific contexts can be used in the proposed research.   Very little academic research has been done to theorize the emerging creative or cultural industries in China. Published academic papers in Chinese tend to use the term ?creative industry? as if it    12directly borrows the DCMS definition. Despite the limitations in scholastic research that focus on the local context, the Shanghai Economic Commission and Shanghai Statistical Bureau have officially designated five sectors as creative industries: (1) research, development, and design; (2) architectural and related design; (3) cultural activities, creation, and media; (4) consultancy and planning, and (5) fashion, leisure, and lifestyle services. This act was in response to the rise of creative clusters in the inner city (Shanghai Creative Industry Center, 2006a).The five sectors have been further subdivided into 38 categories and 55 segments (see Appendix I for list of categories and segments). According to the Shanghai Municipal Government, one of the criteria in choosing the five sectors is their high growth potential10. Clearly, the selection process is somewhat arbitrary. Such categorization does not provide for any theoretical conceptualization; rather, it is simply the result of strategic policymaking that puts into practice the ?doing before thinking? approach.   However, it must be noted that Shanghai Municipal Government had referred to DCMS studies when designating the five sectors. Nearly all of the 55 segments fall within the DCMS definition. A large proportion of designated industries conform to Garnham, Gospodini, or Scott?s conceptualizations of cultural industries. Therefore, in many aspects, Western literature can provide useful insights into the nature of creative industries when focusing on the Shanghai context; however, although critiques and certain adaptations need to be incorporated into this research.     The focus of this research is on territorially based creative industry clusters, rather than economically defined creative industries; however, understanding the dynamics of the latter is the basis for studying the formation process of the former. In the Shanghai context, the clusters under                                                  10 The other two criteria are 1) the combination of the classification systems in the advanced economies and China?s and Shanghai?s conditions in order to advance industrialization, urbanization, and modernization; and 2) China?s national standards on industry classifications (2002) in order to facilitate obtaining statistical data (see Shanghai Creative Industry Center, 2006a, p.19). According to statistics provided by Shanghai Creative Industries Demonstration and Service Platform, a semi-government information platform to support creative industries in Shanghai, the total value creation of creative industries in the city increased from RMB49.3 billion to RMB114.8 billion from 2004 to 2009 (from 5.8% of GDP to 7.7% of GDP). The growth rate of creative industries in 2009 was 17.6% (see http://www.creativecity.sh.cn/, accessed July 30, 2010).      13study are all officially designated; the official classifications of creative industries were relied upon when the government made these designations. The official definition of creative industries is quite broad; hence, not all designated industries have been found in the studied clusters. Similarly, not all businesses/enterprises located in these clusters fall within the officially classified creative industries; some simply provide ancillary services to the creative industry businesses. Hence, the unit of study in this research is geographically defined as creative clusters, which comprise both creative industry firms and other spatially related businesses, with the former accounting for the majority of the firms. In a sense, as far as this study is concerned, defining what constitutes a cluster and how a cluster functions internally and externally is more important than defining what constitutes creative or cultural industries11. It must also be noted that a cluster may expand beyond the ?official? (and physical) boundaries in functional terms; this point was taken into consideration in the fieldwork.     1.2.3 Scope of the Research  Industrial restructuring and CIC formation are different urban processes; however, they largely overlap in the case of Shanghai?s inner city. Declining post-industrial sites have undergone different types of change. In addition to being occupied by creative enterprises12, or simply having been lying idle, some of these sites were converted (or in some cases, redeveloped) into various types of commercial, residential, or low-externality industrial sites. However, CICs in Shanghai are not only confined to few post-industrial sites; some are based in newly developed commercial buildings or old non-industrial buildings. This research focuses on CICs located in post-industrial sites. Figure 1.1 illustrates this focus more clearly. The dotted ellipse (Areas A and B) denotes industrial sites undergoing restructuring, while the solid ellipse (Areas A and C) denotes officially designated CICs. The overlapping area of industrial restructuring and creative cluster formation                                                  11 This aspect will be explored in the chapter on questionnaire surveys.  12 When discussing the Shanghai situation, the meaning of creative industries is based on the Shanghai context.     14(Area A) constitutes the focus of this research. Not only can such CICs on post-industrial sites reveal the interplays of the dual processes of the industrial restructuring and the new economy space formation of Shanghai, they also offer deeper insights into the planning discourse on the inner city.      Source: the Author. Note: The figure is for illustration only. The actual size of the ellipses does not denote the scale of the issue under investigation. It must be noted that the number of CICs are far smaller than the number of industrial firms that had undergone restructuring in the past two decades in Shanghai.   Cases of  Industrial Restructuring  B  A                  C Creative Industry Clusters A: CICs on old industrial sites (focus of the research) B: Old industrial spaces lying vacant or converted to uses other than CICs  Figure 1.1?Illustration of Scope of Research    151.3 Methodology  This research utilizes a combination of qualitative and quantitative methods. It involves the conduct of case studies, in-depth and short interviews, questionnaire surveys, a literature review, site visits and observation, photography, and mapping.   1.3.1 Case Studies  Examining each of the 75 CICs in detail would be impossible; therefore, case studies were carried out to conceptualize the development processes of CICs in general. Two questions are deemed pertinent for the method of case study in this research: how many cases are included and which cases are selected.   Faced with time constraint, the number of cases was initially restricted to three. The initial consideration was to select cases that can represent different types of development trajectory of CICs. Anecdotal information from mass media and literature led me to hypothesize that some developments were spontaneous, while others involved participation of the state and commercial developers. Therefore, I initially decided to investigate three cases that represent the leading roles of these three different players. However, after completing two case studies (M50 and Red Town), I realized that when CICs are developed, the state and developers are usually organized as an informal coalition and it would be difficult to separate their roles for individual cases. Preliminary fieldwork on the third case (Tianzifang) suggested that information gathered in the first two cases was nearly saturated. Additional details were being uncovered; however, new information about the third case was not leading to significant new insights. In addition, preliminary information on    16the other CICs also supported this claim. Therefore, I finally included only two detailed case studies in this dissertation. Based on subsequent research, the two cases of M50 and Red Town represented two successive stages of transformation of inner city industrial spaces.      The selection of individual cases considered the purpose of this research (i.e., to problematize Shanghai?s CIC policy). My starting point was another hypothesis: in recent years, Shanghai CICs have been heading in the wrong direction because of the overemphasis of policymaking on the economic dimensions of urban development. To allow for generalization, very successful cases should be selected; if such cases would encounter problems, other cases might have fared little better (Flyvbjerg, 2004; Yin, 2003). Furthermore, these successful cases have been designated by the government as models for others to emulate. From the normative perspective, identifying the range of problems encountered by ?successful? cases would broaden the policy interest of this study. In addition, based on my overall understanding of Shanghai CICs, the two selected cases exhibit more complexity than others (e.g. more intense conflict between development interest and conservation forces for M50 case and more comprehensive state support for the Red Town case, see Chapter 5 and 6 for details). Therefore, M50 and Red Town, though not necessarily ?typical? among Shanghai CICs, can nevertheless reveal the complexities of the city?s inner city transformations.   1.3.2 Interviews  Conducting interviews was the most important method used in the case studies. Altogether, 34 in-depth interviews were carried out, including with 6 government officials, 6 scholars, 4 SOE managers, 3 property developers, 11 creative workers, and 3 laid-off workers. The interviews ranged from one to three hours. Approximately 1,780 minutes of interviews were taped, while    17notes were taken for the unrecorded interviews. In addition, over 20 short interviews, each lasting 5?20 minutes, were conducted with creative workers, security guards, and visitors of CICs.   1.3.3 Questionnaire Surveys  Space provision and space usage are two aspects of the formation process of CICs. Questionnaire surveys were used to obtain information on the space usage because of the large number of tenants in Shanghai CICs. Due to difficulty in obtaining a complete list of tenants in the 75 Shanghai CICs, in addition to the inaccessibility of some clusters, a non-random selection method was used when choosing clusters for the surveys. For the same reason, relatively successful clusters were selected to identify common problems among the Shanghai CICs. More details concerning these surveys are discussed in Chapter 7.   1.3.4 Other Methods  Literature review was used to collect general information about CICs, as well as to identify research gaps. Site visits and site observations were used to gather information on CICs that were not investigated in detail. I personally visited 70 of the 75 Shanghai CICs. These visits were very useful for the mapping exercise and for detecting the inaccuracies in the reports of other researchers13. Based on my site visit, I was able to map the Shanghai CICs in the central part of the city. In addition, I also made photographic records of the physical appearance of the CICs. Photos taken at different times during the research period were important in charting the physical                                                  13 My site visits suggested that some information provided by other researchers were not quite accurate. For example, the address of a CIC that was copied by many researches from the Internet proved to be non-existent. I later discovered the true location of that CIC from another source (the government-sponsored 2008 Shanghai Creative Industry Week).     18transformation of the sites, particularly in the Red Town case study (see Chapter 6).   1.4 Organization of the Dissertation   The dissertation is organized into nine chapters. The introduction is followed by two chapters on theoretical discussions. Shanghai is a hybrid city; it not only combines elements of the East and West, it blends the legacies of laissez faire economy, state capitalism, central-planning communism, and today?s market socialism. To understand urban transformations from the context of such complexity, understanding both Chinese and Western perspectives are necessary. Chapter 2 focuses on the discussion of urban restructuring (post-industrial and post-Fordist transformations), and its causes and consequences. Most of these theories are developed based on experience of the West. Chapter 3 focuses on the Chinese context, the most notable aspect of which is the discussion on the role of the state. The theories discussed in Chapters 2 and 3 are complementary and are revisited in the synoptic discussion of the CIC phenomenon, as well as in identifying theoretical and policy implications.   The next four chapters are devoted to the presentation of empirical data. Chapter 4 offers a brief historic review of the industrial development of Shanghai in the past 150 years. This chapter provides historical and institutional context for understanding the current state of CIC phenomenon and its related policies. Chapters 5 and 6 focus on the two principal case studies (i.e., M50 and Red Town). In these chapters, I will focus on the processes of space provision and the roles played by different players, as well as their respective interactions. The two case studies offer perspectives from space providers. Chapter 7 presents the empirical data on space users, in particular, their business profiles, location choices, cluster ecology, and opinions on the planning of CICs.     19 Chapters 8 and 9 attempt to synthesize the overall research. Chapter 8 provides a deeper analysis of CICs based on a comparison and summary of the two cases. Some generalizations on Shanghai CICs, both in terms of urban process and socioeconomic consequences, are offered by incorporating the results of the questionnaire survey. The dissertation concludes with Chapter 9, where the theoretical and policy implications of the development of the Shanghai CIC are discussed. Arguably, the changes undergone by Shanghai?s inner city changes follows a post-socialist, rather than a post-Fordist, trajectory, with the state exerting significant influence on the urban transformations in China. In addition, in response to the problems identified in the empirical part of the dissertation, I will also provide some policy suggestions on the four inter-woven aspects of CIC formation and policy (i.e., social justice, industrial agglomerations, land-use planning, and the support for the arts and culture). These four aspects represent the social, economic, physical, and cultural dimensions of the Shanghai CICs. They are also suggestive of the complexities regarding the urban transformations in China and other stress points that need to be approached comprehensively when dealing with contemporary urban problems in China.     202 THEORETICAL DEBATES ON URBAN RESTRUCTURING: WESTERN PERSPECTIVES  The theme of this dissertation is Shanghai?s industrial restructuring and formation of new economy spaces. In this chapter, literature on urban restructuring is reviewed, with focus on ?inner city,? because this term is more commonly understood by Western scholars. I will first discuss the sweeping economic, social, and physical urban processes that have taken place in many cities around the world. To delve further into the investigation, I will single out the rise of the urban cultural economy, the latest phase of post-industrial transformation.   2.1 Urban Restructuring in the Inner City  According to Hutton (2004b, 2008), for much of the 20th century, the metropolitan core of former industrial cities is comprised generally of three parts: (1) central business district (CBD) dominated by a high-density corporate office complex (but may also involve some mixed-uses); (2) the CBD fringe or ?frame,? a zone characterized by diverse low-value services and quasi-industrial activities; and (3) the inner city, incorporating both industries and housing, notably working class neighborhoods. Though based on the prototypes of the ?Atlantic Core,? such structures also have some relevance in other parts of the world, including many Asia Pacific cities that have undergone industrialization. In the following segments, I will review a number of studies that have contributed to the understanding of the tri-processes of inner city transformation: industrial restructuring, social reconstruction, and physical changes.      212.1.1 Industrial Restructuring  During the first half of the 20th century, the inner cities of the advanced capitalist countries were the epicenters of manufacturing industries; this is due largely to their locational advantage as transportation nodes (Shaw, 2001). Many of these industries, though not all, were organized based on Fordist mass production principles. A notable process of change was the decentralization of production capacities to the suburbs and offshore locations. This change generally began in the 1960s because of the improvement in communication and transportation technologies, as well as the advancements in business management practices. The influential work of Bell (1973) on post-industrialism provides a general and illuminating portrayal of the coming post-industrial society by identifying five transformation dimensions: (1) from goods production to service provision; (2) the rise of professional and technical classes; (3) the importance of theoretical knowledge (as opposed to empirical knowledge) in innovation and policy formulation; (4) future orientation determined by technology and technological assessment; and (5) scientific decision-making as a new ?intellectual technology? (p. 14). An interesting argument made by Bell is the absence of a great divide between socialist and capitalist economies. In particular, he sees similar trends toward post-industrial transformation in both socioeconomic systems.   Theories on post-Fordism offer insights into the transformation of the capitalist political-economic system (Amin, 1994). The Fordist system was a mode of regulation regime that served to maintain the equilibrium between mass consumption and mass production, as well as the balance between capitalist class and organized labor (Jessop, 2002). However, the change of consumption preferences toward individualized products and the development of the new flexible production system transformed the economic landscapes of the industrialized world. Accompanying changes in the regime of accumulation was the breakdown of the old mode of regulation centered on the welfare state and the organized labor. According to Lash and Urry (1987), the capitalist economy    22has become increasingly ?disorganized.?      Post-industrial transformation indicates the ascendance of control and management relative to production functions of cities (Sassen, 1991). Most notably, perhaps, is the hegemonic role of central business districts (CBDs), which serve as the nerve centers of a decentralized production system. Such transformations are best explained by the global city literature, such as the works of Hall (1966), Friedmann and Wolff (1982), Friedmann (1986), and Sassen (1991, 1995). Many cities function primarily as national or regional, rather than global, centers; however, the spatial logic of exercising centralized control and management over decentralized production facilities is quite similar. Unlike the Fordist organization of manufacturing, the financial and advanced producer service firms concentrated in CBD zones are more likely to be organized in a post-Fordist flexible form of production (Ley, 1996). (The review of post-Fordist system literature is carried out in the next section.) In contrast to the central core, the inner city has experienced a wrenching disinvestment and decline in this post-industrial transformation, including the downsizing and closure of traditional industrial firms, the generation of a newly unemployed urban underclass, and the deterioration of physical landscapes. Since most global cities were once old industrial giants, industrial restructuring could aggravate the duality produced by the tendencies of polarization within the service sectors, which have been well documented in global city literature (Fainstein, 2001).  As Hutton (2008) points out, the economic and social restructuring in the inner city, continuing into the early 1990s, has not created an ?end-state?; rather, it has helped trigger a new round of industrial innovation and restructuring. This new stage is characterized by the reassertion of the inner city as the locus of new production that combines arts, knowledge, and technology, and in some cases, finance, which together result in high value-added outputs (Hutton, 2004a; 2008; Indergaard, 2004). This is ?new economy? (mostly referring to high-technology industries) and    23hosts of creative/cultural industries generally organize themselves in a post-Fordist flexible manner within newly formed ?industrial districts? that mainly serve individualized or niche markets. Depending on the degree of geographic expansion, land-use mixes, social synergies among firms and the degree of maturity,Hutton (2004a) has developed a typology of these new economy spaces in the inner city that divide the localized production systems as follows: (1) extensive new production districts, such as ?Multimedia Gulch? (South of Market) in San Francisco; (2) compact new economy clusters (either spontaneous, such as Victoria Square-Gastown in Vancouver or induced, such as False Creek South in Vancouver) ; (3) new economy precincts, such as Telok Ayer in Singapore; and (4) incipient new industry districts and sites, such as Stratford (Newham) in London.     The new economy of the inner city is directly linked to the CBD core, not only in terms of downward linkages to the market place (e.g., corporate clients or middle/upper class individuals) (Ley, 1996; Indergarrd, 2004; Lloyd, 2005; Sassen, 1991), but also, in some cases, in terms of upward linkages to finance. The latter case is demonstrated by the interwoven networks and synergies, such as those among Silicon Alley?s new media firms and the venturing capitalists, major financial institutions, and other business services in Wall Street in the 1990s (Indergaard, 2004).   Several factors contribute to the revalorization of the inner city as new production sites in this latest stage of post-industrial development. The inner city represents the kind of ambiance that is conducive to the birth of new industries, whether economic (e.g., low rent, closeness to market, access to specialized labor), environmental (e.g., heritage buildings, visual stimuli, amenity, ?hipness?), or socio-cultural (e.g., social institutions, cultural diversity, social mix). Alternatively, borrowing one of Florida?s (2002c, 2005) terms, inner cities have the kind of ?people climate? that helps attract talents and, hence, creative firms. The new economy firms in the inner city are    24particularly shaped by agglomeration economies, whether in terms of transaction cost reduction, untraded interdependencies, or creative milieux, and so on (these concepts are discussed in succeeding sections). Once new industry firms reach certain critical densities, cluster dynamics can put them on track by self-reinforcing growth; and this is what economists call ?increasing returns to scale? (Scott, 2000a). In addition to spontaneous growth, the roles played by a boosterist state and related public policies that enable or promote ?re-industrialization? of the inner city are by no means insignificant in this new round of urban regeneration (Ley, 1996; also see Zukin, 1982; Hutton, 2004b). These issues are discussed in more detail in the next section.   The growth potential of the new industries in the inner city is not limitless. Similar to the previous rounds of transformations, internal or external factors can easily set the processes on a downward spiral. Volatility, which is related to a number of factors, is an intrinsic characteristic of new inner city industries (Hutton, 2008). First, the rent hikes resulting from continued gentrification and competition for spaces among new firms can seriously dampen the growth momentum. Such tendencies are well documented for the inner cities of New York (Zukin, 1982; Indergaard 2004), Chicago (Lloyd, 2005), London (Hamnett, 2003), Toronto (Caulfield, 1994), Vancouver, and other Canadian cities (Ley, 1996). Second, the proliferation of new industrial spaces and the heavy involvement by real estate capital and the government can reduce the very distinctiveness (or authenticity) that initially attracted pioneering individuals and firms, most notably artists and their enterprises (Ley, 1996, 2003; Lloyd, 2005; Peck, 2005). Third, certain external factors, ranging from the change of strategies by investors to the switching of tastes of consumers or corporate clients, can easily lead new industrial firms into problematic situation. While the upward growth of clusters can be self-reinforcing, downward deterioration can also set in once the ?social ecology? of the inner city has been disrupted. Perhaps, nothing demonstrates this point better than the dramatic rise of the new media firms in Silicon Alley in the 1990s and their subsequent free-fall when the overheated financial and technological bubbles finally burst at the beginning of    25the new millennium (Indergaard, 2004). The vulnerabilities and volatilities of the new industries also pose theoretical questions as to whether the reassertion of production in the inner city is a permanent phenomenon with periodical adjustments, or if it is simply an ephemeral phenomenon in the history of urban development14. Answers to this question are yet to be answered. However, one thing seems to be clear: the contemporary inner city is a salient site for post-industrial experimentation, creativity, and innovation (Hutton, 2008).       2.1.2 Social Reconstruction  Accompanying the processes of economic restructuring are changing social landscapes. With the deepening of globalization, post-industrial, and post-Fordist transformations, the urban underclass (the unemployed, sweatshop workers, and low-end service employees) that concentrate in the inner cities are gradually being displaced by groups higher in the social hierarchy. In today?s ?cognitive-cultural economy? (Scott, 2007), we see a proliferation of terms that try to define the new privileged social stratum: ?transnational capitalist class? (Sklair, 2001), the professional ?service class? (Lash and Urry, 1987), the ?new middle class? (Ley, 1996; Hamnett, 2003), the ?creative class? (Florida, 2002c, 2005), the ?symbolic-analysts? (Reich, 1992), the ?educated class? and the ?Bobos? (bourgeois bohemians) (Brooks, 2000), the ?hip consumers? (Frank, 1997), and so on15. Many nuances exist among these denominations, but all refer to people that are the beneficiaries of today?s knowledge economy. These people share many characteristics; they generally have high levels of education, hold professional jobs, earn enormous discretionary income, enjoy high levels of mobility, and are high propensity consumers. They are the mainstay of consumers of firstly, the low-end personalized services that are provided largely by the urban                                                  14 The latest round of financial turmoil triggered by the subprime crisis in US and its impact on the creative/cultural industries is an empirical demonstration of the volatility and vulnerability of the new economy sector.  15 This point was made by Prof. Allen Scott at the 20th Conference of the Pacific Regional Science Conference Organization, May 6-9, 2007, Vancouver,     26underclass at the other end of the social spectrum; and secondly, of the high-end consumer services that sustain many new industries in the inner cities and other localities; and thirdly, of various amenities in or close to the inner cities that draw many of them to the city in the first place (Ley, 1996). However, despite the new economy and creative/cultural economy of the inner city that adds diversity to the monolithic corporate sector in the urban core, its social landscape, in a sense, has become more homogeneous.   In addition to occupational change, another important mechanism of social and class reformation in the inner city is ?gentrification?, a term coined by British sociologist Ruth Glass (1964) and is related to residential choices. Occupational change and gentrification are closely correlated urban processes (Ley, 1996). Here, I want to stress the dynamics of gentrification processes as a characteristic of change, leaving temporarily the discussion on the role of artists. Caulfield (1994) and Ley (1996, 2003), in studying Canadian cities, suggest that gentrification is not a single process of one group displacing another; rather, it is a more dynamic process of continued displacement, succession, and diffusion. According to Ley (1996), the pioneers are usually the marginal middle class members and those more willing to take risks in ?blighted? neighborhoods, particularly artists. These pioneers may include those most likely to identify with the values of artists, the ?cultural new class? in the field of design, advertising, journalism, the media, professionals in government services, health, education, and welfare, as well as students and intellectuals. In fact, choosing a marginal neighborhood is similar to choosing other ?positional goods? that underscores the growing demand for cultural industry products (e.g., for social distinction, for articulating self-identity such as urban identity in the case of gentrification, for manifesting personal values, and so on). At the beginning of the transition, physical change is usually limited to small-scale and usually unnoticeable housing renovations. There is very little involvement of real estate interest, and housing upgrades are sporadic and largely reliant on small private investment or sweat equity. Once the first wave of gentrifiers had successfully ?tested the    27waters,? and had gradually and unintentionally changed the nature of the neighborhoods, future waves followed. The next wave included more established professionals (e.g., doctors and lawyers). The final wave was more conservative groups (e.g., private-sector managers and professionals). Roughly speaking, earlier gentrifiers have higher cultural capital relative to economic capital, and the followers tend to have increasing economic wealth and more conservative social values. Similarly, in the later stages of gentrification, physical changes are usually characterized by large-scale redevelopments and heavy involvement in the property interests. In fact, even among artists, Lloyd (2005) observes that there are different waves of Bohemian aspirants in Wicker Park, Chicago?s new chic area. Artists in the later waves tend to be wealthier and more interested in making the scene, rather than making art; however, Lloyd argues that these latecomers have no less influence in helping forging the creative milieu of Wicker Park. These observations from artists seem to suggest a similar logic underpinning the stage theories of gentrification. The stage model of gentrification is a generalization and runs the risk of oversimplification, yet it has heuristic value for our understanding of the social reconstruction of the inner cities (Ley, 1996).   The classic study of Ley (1996) on gentrification in Canadian cities is valuable not only in the sense of registering the diachronic changes in the inner cities, but also in helping reveal a more comprehensive picture of the agents of change. Real estate interests and the state are clearly important players, as have been documented by other authors as well (e.g., Zukin, 1982; Hutton, 2008). Ley draws our attention to the agencies of the public and non-profit sector workers, as well as women in directing inner city changes. However, his focus on Canadian cities with relatively large non-corporate sector may pose questions on the applicability of his arguments in other contexts. Literature, particularly concerning global cities, tends to overstress private sector professionals in remaking the social landscape of cities. In the meantime, these studies neglect other, possibly more important sections of the middle class that have very different value systems    28from those of private-sector professionals. Ley?s thesis is clearly a supplement to this deficiency as it reveals that the ?new middle class? is not a monolithic group; he interprets waves of middle class moving into the inner city as ?a self-production of a social identity in an ever more plural society? (p. 362). However, the fact that the construction of social identity always has to submit to the power of wealth demonstrates the limit of such practices, particularly for the earlier gentrifiers and their aspirations.   The dual processes of gentrification and industrial restructuring are not only interwoven, they mutually reinforce each other in producing a polarized or unequal social order. Therefore, being the major locus of these two urban processes, the inner city is evidently also the major site for social dislocation and intensified class conflicts (Hutton, 2008).   2.1.3 Physical Changes  The reassertion of production and gentrification helps transform the physical landscapes of inner cities. New industrial firms and waves of gentrifiers have identified latent values in buildings that bear the marks of history and yet had been largely deserted or underutilized during the post-industrial era. Enticed by rent gaps (Smith, 1987), property developers, landlords and other vested interests in land development made new reinvestment in the blighted areas, not only converting many old buildings into new uses, but also adding new amenities as well as new commercial developments, particularly high-end condominiums, into the new landscape. The combined efforts on individual home owners, space users, real estate developers, and the state have turned an unwanted ?piece of junk? into something that is highly desirable (Ley, 1996). In the context of post-modern shift in aesthetics, urban design and urban planning paradigms, urban renewal based on historic preservation has become the new theme in the inner cities. On the one    29hand, these strategies create spaces for new localized production and consumption practices. On the other, they help revive the cultural identities of the inner cities. However, these transformations should not be interpreted too optimistically as revival may simply be a harbinger of future decline, not only in the economic sense (e.g., pricing out the dynamic and creative firms, mostly small- and medium-sized), but in social and cultural terms as well (e.g., homogenizing new developments and eradication of social history). Perhaps, the only enduring element in the development trajectory of inner cities is ?change? itself.   Changes that have taken place in the inner cities expose the contradictions, as well as the resilience, of the capitalist system. Contempt and resistance to the logic of capital accumulation have always existed in capitalist societies. The histories of Bohemians and the stories of neo-Bohemians (Lloyd, 2005), the hippies, and youth countercultures of the 1960s (Ley, 1996; Frank, 1997) are some good examples. The capitalist system has shown remarkable resilience in co-opting these counter-forces by cashing in on the self-sacrifice of the neo-Bohemians (Lloyd, 2005) or by commodifying resistance, repackaging them as ?lifestyles? or ?cool,? and then selling them back to the marketplace for further accumulation (Ley, 1996; Frank, 1997). The seemingly oxymoronic terms of ?Bobos? (or bourgeois bohemians) (Brooks, 2000) or ?culture industry? a l? Frankfurt School capture these contradictions in the capitalist system.     2.2 Cultural Economy of Cities  As has been shown in the previous section, the formation of a corporate economy and the rise of the cultural economy are the two themes of post-industrial transformations. In this section, I will further focus on the theoretical debate on the cultural economy of cities, as it is more directly related to the development of Shanghai CICs. This section is divided into two parts. In the first part,    30I will review literature on agglomeration economies and clustering theories. These studies have been mainly, though not exclusively, developed based on studies of the manufacturing and high-technology sector, and largely have been applied to cultural industries and business services. This is important for understanding how industrial agglomerations are formed. In the second half, I will discuss peculiarities of the urban cultural economy and its formation, as well as other related issues.   2.2.1 Understanding Agglomerations and Clustering   Agglomeration economies, which benefit from the spatial concentration of economic activities within confined geographic areas, can be divided into two types: localization economies and urbanization economies. The former refers to externalities within a given sector, while the latter defines externalities between firms in all sectors, usually at the urban scale (Feldman, 2000; Scott, 2006b). The latter perspective has been illustrated by Jacobs (1969), an advocate of diversified urban economic structures. Most of the reviewed literature in the following paragraphs focuses on localization economies.   Early economic geographers have attempted to explain a firm?s location choice and its agglomeration tendency from the perspectives of factor endowment, market proximity, and the associated transportation costs and scale/scope economies (e.g. Feldman, 2000; Moses, 1958; Moses and Williamson, 1967; Scott, 1980). As physical resources have increasingly become ubiquitous in recent decades due to advancement in transportation and communication technologies (Maskell and Melmberg, 1999), these early theories have become incapacitated when explaining the persistence of economic agglomerations observed throughout the developed and some parts of the developing world, even despite of globalization and decentralization (Scott and    31Storper, 1992). Some new theories have also been developed, and old theories have been modified in response to the latest changes in industrial technology and organizations. I will review some of these new insights in the following segments.   2.2.1.1 Thesis of Flexible Specialization   In their seminal book, Piore and Sabel (1984) argue that flexible specialization provides an alternative solution to the rigid Fordist mass production system that has been in crisis since the 1970s16. Unlike Fordist production systems, flexible production systems are characterized by flexible and multi-use equipment, skilled workers, and a cooperative industrial community that is largely comprised of small- and medium-sized firms. Rather than making de-skilled people perform short-cycle execution tasks and subordinating them to special-purpose machines (Taylorism) in Fordist factories, workers with flexible skills and performing long-cycle job tasks can regain their agency in the flexible system. Such a ?reflexive? production system (Lash and Urry, 1994) can adjust quickly to external changes; it is also conductive to innovation, particularly on the shop floor.   Coffey (1992) summarizes three dimensions of the flexible production system: (1) programmable forms of production automation; (2) socially fragmented but inter-connected units of economic activity; and (3) fluid labor market structures. Flexibility is not new; it has been exploited by numerous large and traditional artisanal firms. The new feature in the contemporary version of flexible production is that it has opened opportunities ?for small firms to engage in diversified quality production where high degrees of flexibility and efficiency in the production of specialized                                                  16 The term ?flexible accumulation? used by David Harvey (e.g., 1987) is different from ?flexible specialization? as the former characterizes the mode of accumulation of the wider capitalist system instead of the specific means of production pertinent to individual firms.    32(semi-customized or customized) quality-competitive products are attained through a small firm?s new ability to change promptly from one product or process configuration to another? (Asheim, 1992, p. 50, emphasis in original). Flexible production helps enhance the competitiveness and vitality of independent small firms embedded in a regional system of production vis-?-vis large corporations in the modern economy.    The hallmark of flexible production is vertical disintegration and external social division of labor, rather than internal technical division of labor (Coffey, 1992; Scott, 1988, 2006b; Scott and Storper, 1992). The flexible specialization system is organized similarly to a community, taking the form of industrial district/regional conglomerations, federated enterprises, ?solar? firms, or workshop factories (Piore and Sabel, 1984). Four interrelated theses further illuminate how the ?community? structure helps firms remain competitive in the long run without having to descend into a downward spiral of wage and cost reduction (Storper, 1995): (1) transaction costs and external economies, (2) untraded interdependencies, (3) learning, and innovation and (4) industrial districts.   2.2.1.2 Thesis of Transaction Costs and External Economies   This perspective is represented by the California school of external economies, which stresses the economic rationales of spatial agglomeration. To cope with uncertain and unstable market conditions, as well as fierce competition, firms vertically disintegrate themselves while converging together through input-output linkages. This arrangement helps firms fine-tune their production activities based on price signals. The benefits are particular patent when production linkages among firms are intensive, or linkage costs account for a high proportion of overall operating expenses. Meanwhile, co-location also helps firms tap economies of scale and scope in    33inputs (materials or labor pool) and infrastructure services. Therefore, the tendency for agglomeration is not only determined by nature of production of individual firms (reduction of transaction cost), but also by the size and diversity of existing agglomerations (reduction of input cost). The two effects combine to produce increasing returns and self-reinforce logic of growth for many regional economies once they are set in motion, although diseconomies may set in at a certain period for certain cases (Scott, 2002, 2006b).   The thesis of transaction costs and external economies can be applied to both manufacturing and service firms. For the former, input-output linkages deal largely with physical inputs; for the latter, soft inputs such as knowledge and information are more important. Scott (1988, 2006b) maintains that the transaction-intensive flexible accumulation regime is particularly relevant to ?new industrial spaces,? including in (1) revived craft- and design-intensive industries, which produce largely, but not exclusively, consumer goods; (2) high-technology industries with their associated input suppliers and subcontractors; and (3) high-end producer and personal services. However, the California school of external economies over-stresses the effects of agglomeration on a firm?s choice of location, while downplaying pre-given locational factors underlying the rise of agglomerations. Scott (1988, p. 41) writes, ?these factors [locational attributes] do occasionally help pinpoint particular locational outcomes, but their theoretical interest is frequently of minor importance,? as compared with ?the evolutionary logic of the industrial system and its associated local labor market, and the endogenous dynamic of growth and development that this logic sets in motion.? Such an argument implies that, at early stages, firms are more flexible in their location choices. However, once agglomerations are in place, the cost-reduction imperatives push firms to choose existing agglomerations. However, in providing privileges to external economies over locational specificities, the California school of external economies can only explain why a regional economy continues to grow; it does not offer any explanation regarding how urban processes actually begin. This weakness is intrinsic to all theories that try to explain the location    34rationale of firms in terms of their relation to other firms.        In addition, the transaction cost perspective places too much emphasis on formal business transactions, or ?traded interdependencies.? Therefore, a number of informal interactions among firms are missed in the discussion. This becomes another weakness of the theory, especially when explaining innovation and creativity that do not usually arise from formal business dealings. In fact, empirical evidence shows that, in many agglomerations, firms do not necessarily have multiple input-output linkages with other firms (Bathelt et al., 2004; Maskell et al., 2006). These exceptions have to be explained by another important thesis: untraded interdependencies.         2.2.1.3 Thesis of Untraded Interdependencies  Drawing on theories on evolutionary economics, Storper (1995, 2000) argues that non-traded connections among firms usually overlap with traded input-output relations, and that the former can be critical for regional economy. These, according to Storper, are called ?untraded interdependencies,? and may include the labor market, public institutions, trust, rules, customs, conventions, common language, values, and ways to communicate and interpret information. These factors are more social and cultural than economic. According to Storper, the ?soft? and indirect features related to propinquity seem to be particularly important for industries in certain kinds of technological regimes. These include (1) industries with non-standardized products; (2) industries that produce complex goods or services with much customized and negotiated content; and (3) industries where technology changes quickly. To a large extent, this echoes the industries more susceptible to transaction cost reductions and external economies initially singled out by Scott (1988, 2006b).      35The thesis of untraded interdependencies does not deny inter-firm transactions. Its focus is non-market-based and non-cost-based, and, quite often, informal transactions. Unlike the thesis of the California school on external economies that is oriented toward input-output structures and cost-minimizations, the thesis of untraded interdependencies places more emphasis on value creation, capacity-building, and soft human relations. At a higher conceptual level, regions could be understood as part of the ?supply architecture? for learning and innovation rather than simply as a web bound together by material flows (Storper, 1995, p. 210).   Storper?s thesis has much in common with what Granovetter (1985) considers as the ?embeddedness? of economic actions. However, while Storper tends to take a ?structural view,? Granovetter sees interdependencies more from an ?action? perspective by stressing on the ongoing and continuous social and cultural influences on the decisions of firms. In this line of thinking, economic agents are not atomic players that mechanically make decisions according to rational economic principals or predetermined and internalized social values, norms, or morality. Rather, agents rely on details of social structures and contingencies when identifying particularistic decisions.   Storper?s idea of untraded interdependencies is illuminating; however, his discussion stays at the broad theoretical level. Many other studies, particularly those on learning, provide further insights into the specific mechanism by which untraded interdependencies contribute to competitiveness, as well as the relationships between geographic propinquity and social-economic interdependencies.       362.2.1.4 Thesis of Knowledge Creation, Learning, and Innovation   Firms today have become increasingly dependent on the capacities of knowledge generation, learning, and innovation in order to maintain competitiveness, particularly for those in high-cost localities because knowledge, compared with physical materials, has a weaker degree of ?ubiquity? (Audrestsch, 1998, 2000; Lawson and Lorenz 1999; Maskell and Malmberg, 1999). Innovation is closely related to knowledge creation and learning. Feldman defines innovation, whether on product, process, or organizations, and whether radical or incremental, as ?the novel application of economically valuable knowledge? (2000, p373). Meanwhile, Lawson and Lorenz (1999, p. 307) define ?learning? as ?the generation of knowledge concerning the methods that can be used to improve existing competences, or to develop new ones.? In the following, I will review literature that helps shed light on the interplays between knowledge, learning, innovations, and location dynamics.   2.2.1.4.1 The Tacitness of Knowledge  Innovation involves frequent exchanges of information and knowledge among suppliers, customers, and rivals, as well as other forms of social ties (Hotz-Hart, 2000; Maskell and Malmberg, 1999). Knowledge can be explicit/codified or tacit/implicit (Malmberg and Maskell, 1999; Feldman, 1994, 2000; Bathelt and Bl?ckler, 2005). According to Gertler (2003), tacit knowledge may exist without its possessor being aware of it; even if the possessor is aware of the situation, the codes of language may not be well developed for its explication. While knowledge with a low degree of tacitness can be easily coded and transmitted through mediums over long distances, tacit knowledge (?know-how?), which is usually uncertain, interpretive, reflexive, and fluid, can sometimes only be acquired through experience or direct social interactions (e.g.,    37face-to-face communications or practical demonstrations). An implicit spatial argument following this line of thinking is that geographic proximity, which facilitates direct social contact, also helps ease the difficulty of transmitting tacit knowledge. Tacit knowledge, owing to its transmission problems, is less susceptible to distance-decaying effects in the presence of modern communication technology, and can help reinforce the competitiveness of certain regional production systems (Audretsch, 2000). In general, Storper and Vanables (2004) identify culture, politics, arts, academia, new technologies, and advanced finance as among the industries that are most dependent on tacit knowledge and ?buzz? effect (combined effects of face-to-face contacts).   2.2.1.4.2 The Imperatives of Knowledge Sharing  To become and remain competitive, firms today must depend on knowledge created elsewhere. Knowledge appropriation from external sources such as universities or public institutions is particularly crucial for innovative small- and medium-sized firms without in-house research and development (R&D) facilities (Audretsch, 1998). Asheim et al. (2006) suggest that in an increasingly complex world, even large companies must rely heavily on ideas and expertise from external sources. Feldmen (1994, 2000) thinks that knowledge sharing is particularly important for industries with a high rate of knowledge obsolescence, such as in software development. This claim is supported by the comparative study of Saxenian (1994) on Silicon Valley and Route 128 in Boston. In terms of sources of knowledge and information, Granovetter (1973, 1983) stresses the usefulness of information from unfamiliar sources (?weak ties?). Jacobs (1969), Porter (1990), and Yusuf and Nabeshima (2005) see the roles of knowledge diversity in sparking innovations. Empirical studies by Audretsch and Feldman (1996) in US and Liefner et al. (2006) in Beijing lend further support to the aforementioned perspectives.      38Knowledge sharing and spillover is important; however, how does geographic proximity influence knowledge sharing? In addition to the argument that tacit knowledge cannot travel far, co-locations of economic agents helps thicken the linkages or enhance the channels of knowledge spillover. Knowledge spillover can happen in many dimensions. Major channels of spillovers include inter-firm labor mobility, spin-offs and supplier-customer interactions, formal or informal inter-firm networking, and project collaborations (Capello, 1999; Capello and Faggian, 2005; Lawson and Lorenz, 1999, Scott, 2006b; Keeble et al., 1999; Owen-Smith and Powell, 2004). Formal and informal knowledge sharing always happens simultaneously. Owen-Smith and Powell (2004) suggest that gaining formal membership in a local community enables firms to exploit the informal ties within it. In addition to formal or informal linkages among firms, knowledge appropriation can also happen without direct interactions among firms. Firms can learn simply through imitation, emulation, or reverse engineering (Camagni, 1991; Knudsen et al., 2005). These kinds of learning are more likely to happen when firms can interact socially (Gertler, 1995).       2.2.1.4.3 Cooperation, Trust, and Social Cohesion  Knowledge sharing and mutual learning are built on cooperation and trust. Co-location facilitates social contact and network building that can help check moral hazards and untrustworthy behavior (Feldman, 2000; Hotz-Hart, 2000). Maskell and Malmberg (1999) differentiate ?built trust? from ?shared trust.? In the former, distrust is the default and trust must be purposefully cultivated among the parties involved in formal or informal interactions. In the case of ?shared trust,? the default is trust, obviating the need for formal institutions (sometimes, this is quite costly) to check unilateral rent-seeking and opportunistic behavior. As Granovetter (1985) points out, an institutional mechanism is a functional substitute for trust; it does not produce trust. Social relations, rather than institutional arrangements or generalized morality, is the true source of trust    39in economic activities. Hanson (1992) notes that trust and reciprocity not only have high significance in the development of the capitalist system, but also are a crucial part of an innovative regional milieu. In some cases, for example, in what has been called the Third Italy, trust among the producers is built on the dense and geographically anchored webs of social relations revolving around family members and other kinds of social ties. How is the trust-based culture initially nurtured? Maskell and Malmberg (1999) suggest that over a certain period, an area characterized by built trust can be transformed into one with shared trust. Therefore, the more frequently social interactions and ?digestion of experience? take place, the more likely are the seeds of trust sowed into the local soil. Geographic proximity clearly plays a role in this aspect. Here the chain of action is from proximity to experience, then trust and collaboration, and finally, economic growth (Harrison, 1992).   2.2.1.4.4 Concentration of Talents and Human Capital   A dynamic cluster usually attracts a large number of talents and skilled human labor (Feldman, 2000; Hansen, 1992; Storper and Venables, 2004). In turn, this can attract other firms to locate in the area. Audretsch (1998) argues that it is not merely critical mass that makes the difference, but the fluid environment, characterized by frequent planned or serendipitous encounters of key workers; however, undoubtedly, density can increase the chances of such meetings, both formal and informal. Knudsen et al. (2005) use ?creative density? to measure the concentration of what Florida (2002c, 2005) refers to as the ?creative class,? arguing that talents are usually attracted to places where learning can easily occur and where their skills and creativity can be highly rewarded. In addition, high creative density of an area can further enhance the chances of knowledge spillovers and innovation. Built on the studies conducted in the developed world, Li and Florida (2006) demonstrate that talents, technological innovation, and agglomeration usually go    40hand-in-hand in China.   2.2.1.4.5 Supportive Institutions   Innovation is a complex and sometimes risky endeavor. The presence of well-developed business services helps reduce the complexity and risks and hence business costs. Therefore, innovative firms or start-ups tend to establish themselves in areas where supportive services concentrate (Feldman, 1994; Florida and Kenney, 1988; Porter, 2000). In addition to supplementary business services, other various kinds of private or public institutions, such as trade associations, development agencies, and research or training facilities, among others, are also important for nurturing innovative firms. This is what Amin and Thrift (1995) call ?institutional thickness.? Numerous works viewing large research institutes or universities as anchors of innovative activities can also be interpreted as underscoring the roles of institutions. Empirical studies on this aspect include Lawson and Lorenz?s (1999) paper on Minneapolis and Cambridge , Keeble et al.?s study on Cambridge, UK (1999); Saxenian?s book on Silicon Valley and Boston Route 128 (1994); and Liefner et al.?s paper on Beijing Zhongguancun Area (2006).   2.2.1.4.6 Milieu and Innovative Milieu  The combined effects of ?localized factors? (Hotz-Hart, 2000) or ?localized capacities? (Maskell and Malmberg, 1999) can produce a social milieu that is conducive to collective learning and innovation. Camagni (1991, p. 130) defines local milieux as ?a set of territorial relationships encompassing in a coherent way a production system, different economic and social actors, a specific culture and a representation system, and generating a dynamic collective learning    41process.? According to Capello (1999), learning within a milieu can take two forms: conscious co-operation among agents and unconscious externalities. The latter is similar to the effects of Marshallian ?industrial atmosphere? and has been much stressed by Capello, who regards it as a defining feature of ?collectiveness? in learning. ?Externality? means that the effect is automatic and non-rival. Similar to the concept of ?milieu,? terms such as ?noise? (Grabher, 2002), ?buzz? (Storper and Venables, 2004; Bathelt et al., 2004), or ?creative field? (Scott, 2006b) characterize the same kind of vibrant environment for innovation and creation.     2.2.1.4.7 A Critique of Geographical-based Local Learning and Innovation Systems   In a nutshell, creativity and innovation are social phenomena arising from production systems and their respective geographic milieu. The aforementioned literature stresses the importance of local assets (hard or soft) and geographic proximity. However, caution has been voiced regarding these established views. Granovetter (1973, 1983), Maskell et al. (2006), and Bathelt et al. (2004) argue that ideas or insights from weak ties or non-local sources can be very helpful in innovation processes in some cases. Audretsch (1998), Boschma (2005a, 2005b), Antonelli (2000), Asheim (2000), and Hotz-Hart (2000), among many others, suggest that proximity, tight networks, local culture, and conventions can also lead to institutional inertia or lock-in effects, acting as shackles on future innovative advances. They suggest that agglomeration economies (or agglomeration diseconomies) may dissipate because of rent hikes and increasing commuting times, congestion, and pollution. Bathelt et al. (2004) talks about ?buzz congestion? or information overload, which could be as detrimental as information shortage. Torre and Rallet (2005), as well as Grabher (2001), mention conflicts, tensions, and rivalries among local actors, while Guiliani (2005) notes that not all firms or clusters succeed because being in the right innovative ?milieu? does not automatically imply strong absorptive capacity for knowledge.     42 There are also challenges to the interpretation of ?proximity.? Many scholars stress organizational, institutional, cognitive, social, and cultural affinity in addition to physical proximity on learning and innovation (Boschma, 2005a; Torre and Rallet, 2005; Gertler, 1995). Hence, if economic agents simply co-locate but share no other dimensions of similarities such as common languages, codes, or experience [i.e., they are not in the same ?community of practice? (Wenger, 1998; Gertler, 2003; Bathelt et al., 2004)], ideas cannot be easily communicated. This is what Bathelt (2005) calls as the ?distanced neighbor paradox.? Therefore, ?relational space? (Capello and Faggian, 2005), ?relational proximity? (Gertler, 2003), or ?communities of practice? (Wenger, 1998; Asheim and Gertler, 2005), rather than physical space/proximity, are more deterministic in producing learning outcomes. Physical proximity is not the only important factor for effective learning. Beyond these, there are also arguments against an over-emphasis of local capacities. Bathelt (2005) and Bathelt et al. (2004) suggest that local processes are not sufficient for innovation. Rather, it is the combination and mutual reinforcement of local interactions (?buzz?) and extra-regional linkages (?pipelines,? which are usually constructed intentionally) that holds the key to success. Empirically, Bresnahan et al. (2001) have demonstrated that, during the early stages of Silicon Valley development, agglomeration factors and networking synergies did not play an important role. On the contrary, the ability to tap external market and labor resources explains the cluster?s rise. However, despite these critiques, overall, reservations and qualifications do not constitute a fundamental denial of the roles of agglomerations and localized processes.   Finally, there is an unresolved question in the direction of causality. As asked by Scott (2006b): ?Is it the quest for enhanced innovative energy that induces firms to agglomerate together in geographic space; or is it the prior convergence of groups of firms around their own centre of gravity that gives rise to the high levels of knowledge creation and innovation so often observed in    43dense agglomerations?? (p. 85). Scott?s answer is that individual industrial agglomerations should be analyzed in terms of their idiosyncratic pathways and creative field, and should not be understood as sets of independent or dependent variables. However, the existing literature does not provide sufficient studies on historic trajectories of individual agglomerations.     2.2.1.5 Thesis of Industrial District?A Synthesis  Industrial districts, originating from Marshall?s Principles of Economics (1920), are used extensively by Piore and Sabel (1984) to illustrate flexible specialization systems. However, while flexible specialization and industrial districts are closely connected concepts, they remain different. Flexible specialization can be understood as a paradigm of production organization (Piore and Sabel, 1984). Industrial district, with emphasis on the spatial dimension, is only one of the four faces of flexible specialization. This means that some flexible systems do not have clear geographic manifestations (Piore and Sabel, 1984, p. 265; van Dijk, 1995, p. 18). However, broadly defined industrial districts may include four types: Marshallian industrial districts (with its Italian ramifications), hub-and-spoke districts, satellite industrial platforms, and state-anchored industrial districts (Markusen17, 1996). Only the first type conforms to the prototypical flexible specialization system, although Markusen argues that most clusters tend to be a mix of the aforementioned types in practice.      Harrison (1992, p. 469) defines an industrial district as ?spatially concentrated networks of mostly small- and medium-sized enterprises often using flexible production technology and characterized by extensive local inter-firm linkages? (p. 469). Asheim (1992) suggests that industrial districts are based on flexible production systems, with both external economies and local milieu playing                                                  17 Markusen (1996, p. 296) broadly defines industrial district as ?a sizable and spatially delimited area of trade-oriented economic activity which has a distinctive economic specialization, be it resource-related, manufacturing, or services.?     44important roles. Therefore, the industrial district thesis can be regarded as a synthesis of the theories reviewed previously (e.g., California school of external economies, thesis of untraded interdependencies, innovative milieux, and others.). Asheim (2000) argues that the big contribution of industrial district thesis lies in its introduction of sociology into economic and spatial analysis. Production and innovation within an industrial district are essentially seen as a social process embedded within an institutional and cultural context (see also Harrison, 1992; Granovetter, 1985). Firms are not considered as atomic economic agents, guided only by price/cost signals (neo-classic view, or to a lesser extent, the transaction-cost view); rather, they are seen as enmeshed in a web of interrelationships or a dynamic ?community? glued together by mutual trust. Therefore, social capital (institutions, trust, and so on), or what Asheim (2000) calls as ?localized thickening,? has strong explanatory power for the economic success of a firm (Harrison, 1992). An industrial district, according to Harrison, is a ?social-economic brew? (1992, p. 479). This aspect distinguishes the thesis of industrial district from Porter?s competitive cluster theories (1990, 2000), although the two share some similarities, such as on the emphasis on co-operation in the competition.   A contested issue in industrial district literature is on policy implications, particularly, in planning. Can a dynamic industrial district be replicated, or is it too historically and geographically embedded to be re-created on different soil? There are no easy answers to this question. In Harrison?s view (1992), industrial districts tend to prevail in localities where religion, local politics, and standards of friendship and kinship govern (p. 479). This suggests that successful districts are difficult to transplant into localities with different social and cultural norms. Similarly, Asheim (1992) suggests that it is easier to build external economies (a functional character) than the ?soft? social-cultural structures that are usually deeply rooted in civil society. Meanwhile, many researchers also acknowledge the roles of public policy in building institutional capacities, passing regulations, providing infrastructure (including space), and facilitating cooperation within clusters.    45These ?enabling? policies can increase the chances of success for emergent industrial districts, even if the clusters have a spontaneous origin (Asheim, 1992; Audretsch, 1998; van Dijk, 1995; Scott, 2000b). Scott (2000a) argues that even if clusters are path-dependent, policies (e.g., those needed to help correct market failures) can nudge the system toward auspicious directions at critical branching points. Porter (2000), discussing clusters in general, suggests that, instead of attempting to create entirely new clusters from scratch, governments should try to reinforce established and emerging ones that have passed a market test. That is, industrial clusters should be cultivated rather than planned (Stern and Seifert, 2010). In reality, not all policy interventions produce good results. An empirical study of a high-technology agglomeration in Beijing (Wang and Wang, 1998) suggests that conscious public recreation of spontaneously formed new economic spaces poses significant constraints on the cluster?s innovation and growth potential due to the hierarchical control of both state institutions and global players.   Policy issues also concern the roles of different levels of government. At the national level, the policy should be focused on macroeconomic conditions; at the provincial level, it is about infrastructure, education, and training; and at the local (city) level, the role of the state lies in the provision of spaces and supporting services (van Dijk, 1995). Industrial district theses, as well as cluster theories in general, have elevated the relative importance of territorial-based policies to industrial policies (e.g., picking industrial winners) and correspondingly, the responsibilities of the local state over the national government18.    2.2.1.6 Summary: A Relational Geography  The theses reviewed in this section provide a general analytical framework for understanding                                                  18 See Porter (2000) for a useful comparison of industrial/sectoral and territory-based (cluster) economic development policies.     46industrial clusters, although different theses may have different degrees of relevance for individual cases. The aforementioned literature demonstrates what can be termed an ?associational economy? (Cooke and Morgan, 1998) or a ?relational turn? in economic geography (Bathelt and Gl?ckler, 2003; Yeung, 2005). Under this new paradigm, the economic and the social must always be considered in consonance. Economic actors are not only situated within networks of social and institutional relations, they are also constrained by a historical path. In addition, economic processes cannot be reduced to a few static explanatory variables, but must be understood as contingent on individual strategies and actions. Under this paradigmatic shift, spatial attributes (e.g., closeness to inputs, markets, etc.) are replaced by ongoing social processes as the major explanatory power for geographic processes. Interactions and inter-linkages are crucial, whether they be transaction-related or not, formal or informal, planned or serendipitous, or latent or active. In these interactions, humans show greater agencies in the unfolding of spatial processes. With this understanding in mind, I now turn to the discussion of the new cultural economy and examine how it is different from what has been discussed so far, and what the spatial dynamics of cultural industries are manifested in the process.   2.2.2 The Cultural Economy of Cities  ?Cultural turn? in the economy (du Gay and Pryke, 2002) underpins the latest phase of post-industrial transformation for many cities around the world. The term ?cultural economy? concerns two strands of thoughts. The first is the attempt to understand the economy or economic behavior by assigning social-cultural factors significant explanatory power. This aspect of ?cultural economy? has been touched on in the previous section on cluster theories. The second strand of thought is related to the ?economies of signs? or cultural industries (du Gay and Pryke, 2002; Lash and Urry, 1994; Law, 2002), which have gained currency in major cities in the West, as    47well as in developing countries in East Asia (Scott, 2000a; Hall, 2000; Yusuf and Nabeshima, 2005). According to Thrift (2000), cultural turn in economic geography denotes ?the rise of cultural dimension as a legitimate arena of economic concern and the economic dimension as a legitimate area of cultural concern19? (p. 489). In this section, I will review literature mainly related to the second interpretation of cultural economy. I will first discuss culture in relation to commerce and modern consumption behaviors. Then, I will review characteristics of cultural industries and their spatial manifestations followed by a discussion on culture-led urban regeneration programs. Finally, I will provide a short discussion on Bohemian artists and global cultural industries, underpinning their important roles in the formation of new economy spaces, as well as cultural-led urban regeneration programs.   2.2.2.1 Debate on Culture and Commerce  The marriage between culture and commerce should not be taken for granted. The latest stage of capitalist development, with its tendency of commodifying human culture and aesthetizing the economy, has caused theoretical controversy. Adorno (1990) argues that cultural production should be governed by its inner logic of harmonious formation. Once profit motives are imposed on cultural production, a culture loses its independence and consciousness, and finally falls victim to vacuity, banality, and conformity. Human beings exposed to such commercialized cultural form become the ?object of calculations,? they are ?an appendage to the machinery,? and are seriously debased (p. 85). For Adorno, the culture industry is a means of mass deception. It imposes its will from above and serves the interests of those in power. Therefore, the cultural industry represents a form of oppression.                                                    19 Thrift?s (2000) paper mostly deals with the first type of concern.     48Bourdieu (1993) addresses the relation of culture and commerce from the perspective of cultural production. He believes that cultural production comprises two sub-fields: restricted and large-scale production. The former, mainly referring to so-called high art, has privileged clients or other cultural producers as its primary audience. The cultural workers in this sub-field compete among themselves primarily for prestige and celebrity, rather than for money. This sub-field is considered autonomous, innovative, and responsive to the internal demands of the cultural sphere. In contrast, large-scale production is intended for the mass public and cultural workers, who mainly compete for economic profits by submitting to the laws of the market. Implicitly, the artistic quality of the works in this sub-field is inferior to the first. Both Adorno and Bourdieu see an uneasy relationship between the economic and the cultural.     Frankfurt School has been attacked by many scholars, who see a more benign (albeit problematic) role of commerce on cultural production. Garnham (1987) maintains that substitution of patronage by the market neither leads to the destruction of high culture nor the suppression of marginal cultures, as experience has shown. More accurately, cultural industries should always be read as ?a complex hegemonic dialectic of liberation and control? (p. 34), whether viewed historically or in the contemporary society. From a practical perspective, the alternatives to market is either to subsidize the taste of the economically better-off population, or create a public culture that has no audience other than bureaucrats. None of these alternatives serves the interest of culture or overall society. Similar views are expressed by Hesmondhalgh (2002), who sees the roles of cultural industries as ambiguous, rather than definitively negative. In fact, he mentions that symbol creators in cultural industries exercise relatively higher levels of autonomy compared to workers from other walks of life, although such autonomy has been eroded in recent years. He contends that, in reality, many cultural industries do not necessarily favor the dominant interests in the society. In reality, cynicism, anger, sarcasm, and questioning of authority are widely observed in contemporary cultural scenes.     49 Scott (2000a) is perhaps the most optimistic among the previously mentioned theorists. He notes that the capitalist system has both progressive and regressive tendencies, and is capable of producing cultural products with superior design and complex sensibilities (i.e., masterpieces) on the one hand and debased and numbing products (dross) on the other. This does not suggest that there are necessary internal contradictions between commerce and creativity. Unlike the Frankfurt school, which depicts consumers as passive takers of cultural products, Scott sees consumers as possessing a certain degree of resistance, critical capacity, and self-consciousness, or what Lash and Urry (1994) refer to as ?reflexivity? in consumption. This makes it difficult, if not impossible, for the dominant interests to impose their will through cultural osmosis.   2.2.2.2 Consumption and Consumer Culture  The latest stage of capitalist accumulation is closely related to cultural consumption (Zukin, 1982). A critical question needs to be answered in order to understand the burgeoning cultural economy of cities: Why do people consume cultural goods or services, most of which are not essential to life sustenance?   Belk (2004) provides a thorough analysis of the meaning of consumer culture and its normative (mostly negative) implications. While there are many different definitions of consumer culture, the basic interpretation is that this culture does not simply imply an abundance of consumer goods. Most importantly, consumer culture involves ?a personal orientation and a social sanction for desiring and acquiring these goods? a receptivity to satisfying an increasing variety of human needs and desires by acquiring commodities and purchasing experiences? [a]nd a social system of status competition through purchased possessions and services? (p. 68).     50 Baudrillard (2003) summarizes four logics of consumption: (1) a functional logic of use value (logic of utility); (2) an economic logic of exchange value (logic of the market); (3) a logic of symbolic exchange (logic of the gift); and (4) a logic of sign value (logic of status). Corresponding to the four logics of consumption, an object assumes the status of an instrument, a commodity, a symbol, or a sign. The last two aspects are particularly pertinent in the discussion of cultural goods or services.   The social system of status competition and the logic of status are of particular interest in the present research. While consumption, to a certain extent, serves to reinforce social hierarchy (Crompton, 2003), consumerism and its associated ?lifestyles? also allow individuals to renegotiate their class identity (Bennet, 2003). Therefore, although consumption practices do not erase class boundaries, they can make such boundaries more blurry. As is argued by Bourdieu (2003), ?[a] class is defined as much by its being-perceived as by its being, by its consumption?which need not be conspicuous in order to be symbolic?as much as by its position in the relations of production (even if it is true that the latter governs the former)? (p. 249, emphasis in original). The quest for social status and distinction through consumption leads to increasing emphasis on design and differentiation of consumer goods/services, giving rise to the so-called positional goods/services (Garnham, 1987; Ley, 1996), many of which are within the domain of cultural production.   However, if the ascendance of cultural industries is related to the quest for status, then why have cultural industries become prominent only in the recent decades considering that the quest for status is not a new phenomenon? Hesmondhalgh (2002), Scott (1997, 2000a), and Lash and Urry (1994) suggest factors, such as the rising income and availability of more discretionary time to the average families in the West, that have enabled these families to practice these non-essential forms    51of consumption. In fact, the consumption of many cultural goods or services requires the manipulation of time (Garnham, 1987). The dependence on discretionary time for cultural consumption suggests the limits to such consumption (Bell, 1973). The rise of new social classes can also be a factor. Sassen (1991) argues that the influence of the transnational professionals in global cities does not lie in their ownership control of corporations, but rather in their consumption behavior. The wealth they command is not adequate for significant control of capital; however, it is quite sufficient to engage in various kinds of lifestyle, luxury, or cultural consumption (e.g., going to gallery openings).   Ho (2005) provides further insights into the surging consumerism, arguing that symbolic values gained in consumption can translate into economic values at work. This should be understood in a post-industrial context in which professional service jobs are mostly client-based rather than material-based; therefore, work is more about managing interpersonal relationships and selling images than about making or selling physical products. Under such circumstances, cultural capital, usually articulated through good taste from accumulated consumption behaviors (e.g., appealing body appearance) can enhance their chance of success in managing human relationships on the job.       Similarly, from the production side, Scott (1997) and Lash and Urry (1994) note that prevalent cultural consumption patterns are related the post-Fordist production technologies. The Fordist system serves the function-centered mass markets in which the consumers look for the lowest possible price. Post-Fordist flexible specialization makes the production of small-batch and high-quality goods both possible and affordable (though not necessarily cheap) to the average consumer. The shift of consumer taste for symbols and semiotic meanings (demand), combined with the flexible production technology (supply), gives rise to the burgeoning cultural industries that we see today.     52 2.2.2.3 Cultural Industries and Their Spatial Dynamics  2.2.2.3.1 Features of Cultural Industry Production  Certain features can help distinguish cultural industries from other industries, such as mass manufacturing or high-tech creative industries. Some, however, have a wider purchase compared with others; therefore, they should not be understood as strict generalizations.   Unpredictable Market  A distinctive, although probably not unique, feature of cultural industries is the volatility of markets for cultural products. Consumer taste is fickle. Inasmuch as the value of social markers or positional goods lies in their scarcity and distinctiveness, market conditions for cultural products are extremely hard to predict (Garnham, 1987, 2005; Hesmondhalgh, 1996). Geographic concentration of cultural industry firms seems to provide a spatial solution to the fickle demand for cultural products (Hitters and Richards, 2002; Scott, 1997, 2000a). Here, empirical work in diverse industries in cities of various sizes strongly supports the relevance of theories of agglomeration (Banks et al., 2000; Bassett et al., 2002; Bathelt, 2005; Christoperson and Storper, 1986; Crewe, 1996; Lash and Urry, 1994; Pratt, 2000; Scott, 1997, 2000a, 2005; and Shapiro et al., 1992).         53Audience Maximization  Cultural industries must constantly provide novel products that rely heavily on human talent. In many cases (music, movies, TV programs, publishing, and others), their production logic is characterized by high cost of production (first copy costs) and low-to-zero marginal costs of reproduction. This may also manifest in distribution. Such logic suggests that the profit in these cultural industries depends on audience maximization (domestically, as well as globally), which gives further weight to the distribution and marketing functions of firms. This situation favors market concentration, and suggests that the key power and profit lies in distribution rather than production (Garnham, 1987, 2005; Hesmondhalgh, 2002).      Semi-Public Goods    Some cultural products bear the character of public goods because they are non-destroyable after consumption, non-excludable, and non-rivaled (Garnham, 2005; Hesmondhalgh 2002). In this connection, Pratt (2005) also speaks of cultural goods as ?merit goods,? suggesting that goods with a benefit but insufficient demand. Public goods imply the need for public intervention of one sort or another, as well as special financial arrangements for specific industries, such as indirect financing through advertising in TV programs or the Internet (Garnham 2005; Hesmondhalgh, 2002). Therefore, the growth of cultural industries in general also contributes to a burgeoning advertising industry, which is a major player in the cultural industry sphere in its own right.  Flexible Labor Market  Cultural industries are increasingly being characterized by flexible labor. Freelancing based on short-term contracts has been common. In addition, the number of cultural workers paid by    54commission or royalties based on negotiation (usually with unequal power) rather than fixed wages has increased. This has two implications. On the one hand, it increases the share of profits for successful cultural workers (particularly the ?stars?). On the other hand, aspiring talents who are yet to achieve a certain degree of public popularity (?stars-to-be,? or what Hesmondalgh refers to as ?reservoirs?) must face increasing insecurities, as a great number of them have to find a second job to subsidize their artistic pursuits (Garnham 2005; Hesmondhalgh, 2002). The cultural industries are ?winner-takes-all? sectors. Therefore, highly unequal distribution of wealth usually accompanies the growth of cultural industries.   Project Ecology  An important, although not unique, feature of many cultural industries is project-based production, which is usually employed in the provision of customized or one-off products or services. In a project, people of diverse skills, either independent or from established firms, come together to accomplish a complex task within a specified period. Project-based production usually involves co-production on the part of the clients (user-producer interaction). Compared with formal firms, project organization is very fluid, interactive, free from redundancy, and flexible (i.e., without any programmable course of action) (Grabher, 2002). Personal ties (?know-who?), reputation, and social structures are crucial for the formation and operation of project teams. The importance of social infrastructure in project organizations implies that densely knit clusters (with advantages in transaction cost, ease of face-to-face contact, and ?hanging-out,? local labor pool, local ?noise,? and so on) can facilitate repeated project collaborations. Although proximity may not be the necessary condition, given the time-constraints in completing the projects, geographic proximity can help relieve the pressure on time (Grabher, 2001, 2002).       552.2.2.3.2 Cultural Industry Clusters and the Location Choices for Cultural Firms  Economic geographers and economists have noticed a high concentration of cultural industry firms in large metropolitan areas (Scott, 2000a, 2007; Heilbrun and Gray, 2001). Hall (2001) mentions that design-oriented producer services and cultural/creative industries tend to agglomerate in high-order global cities. Lloyd (2005) suggests that cultural production is quite often found in old central cities within metropolitan areas. Hutton (2004a) and Gospodini (2006) have pinpointed inner cities as the favored locations for cultural firms. Some rationales for such location choices are related to the cluster theories discussed earlier in considerable length; however, I will now discuss some additional factors that are pertinent in the present context. Two questions on locations pertaining to different scales exits. First, why are certain urban areas more favorable to cultural industries compared with the others? Next, why are certain locations better than others in the same city?      Urban Scale  Some studies have shown that creative firms follow creative talents to where physical and social amenities abound, and where the social milieu is open, diverse, and tolerant to differences (Clark et al., 2002; Florida, 2002a, 2002b, 2002c, 2005). Influenced by such ideas, attracting the so-called creative class (Florida, 2002c, 2005) has increasingly become incorporated into the policy discourses of local governments. The creative-class thesis has been criticized by Scott (2006a) as mechanistic, neglecting the complex synchronic and diachronic interplay among production systems, talents, urban spaces, and social life. An even more trenchant critique is advanced by Peck (2005).   Many scholars have discussed place monopoly in cultural production (Molotch, 2002; Mommaas,    562004; Scott, 1997, 2000a, 2005). For varying reasons, cities (or the names of cities) may acquire a certain symbolic value that serves as a name brand for local producers. Good examples are movies from Hollywood and fashion from Paris (Scott, 1997, 2000a, 2005). At the same time, products from certain places also vociferate a certain feel or ?odor? (Iwabuchi, 1998) that are unique to these places because of the influence of local character or details (such as culture, urban life, and so on) on cultural production. Cited examples are apparel designs from Los Angeles (Molotch, 1996) and advertising from London (Grabher, 2001). The local cachet, or the mental association between the image of place and products, is part of the symbolic asset of a locality. This asset can not only can help its products command monopolistic prices in the world market, but also keeps competitors in other places at bay in the longer term.   Drake (2003) provides a more nuanced analysis on how place factors have become incorporated into the aesthetic and expressive elements of products. Drake believes that ?places? should be viewed as subjective, imagined, and emotional phenomena, in addition to their objective and physical beings. Raw location attributes (history, locational characters such as architectural styles, natural environment, daily life, and others) affect the subjective emotions of creative workers. These emotions can be translated into stimuli, prompts, ideas, or ?raw materials? in individualized aesthetic creation. This view is very different from the cluster-based view that stresses collective creativity based on social interactions and information flows. Drake?s thesis focuses on the relationships between place and individual creativity, and is more relevant to cultural workers than to creative workers in other industries who mostly rely on analytic or synthetic creativity, such as scientists or engineers (Asheim and Gertler, 2005). Drake (2003, p. 518) succinctly summarizes four types of relationships between place and creativity: (1) locality as a resource of visual raw material and stimuli; (2) locality as a brand based on reputation and tradition; (3) locality-based intensive social and cultural networks; and (4) locality-specific communities of creative workers. The boundaries between the four types may not be clear-cut, as networks, place brand, or worker    57communities can all translate into emotive contents (Drake, 2003; Pratt, 2000).     Cluster Scale  Mommaas (2004) notes that cultural clusters can take many forms. Some are restricted to stand-alone buildings or larger complexes, while others may extend to occupy larger geographic areas. Interestingly, many of these clusters are housed in former industrial buildings, although newly built sites are also common. Some clusters are production-oriented, while others are more focused on consumption. Cluster theories are mostly developed based on the production-oriented type. For the consumption-based clusters, some are more restricted to artistic/cultural activities, while others focus on leisure and entertainment businesses. In terms of development trajectories, some clusters arise unconsciously and spontaneously; however, others may be initiated by private cultural managers aiming to strengthen their own market position, or by public efforts (such as urban planners) aiming to strengthen the urban economic base or boost urban images.        Hitters and Richards (2002) reveal that in many cultural clusters, formal inter-firm linkages are weak. For consumption-based agglomeration, the volume of new middle-class consumer traffic is a more important rationale for clustering than are firm linkages. Accessibility, therefore, becomes an important factor of cluster formation. In reality, even for production-oriented cultural industry clusters, as Mommaas (2004) suggests, intra-cluster exchange may not be strong.   Lloyd (2004) sheds light on the location of so-called bohemian artists. According to Lloyd, a big difference between a modern bohemian neighborhood and a technology R&D district results from the latter usually having an industrial beneficiary and financier, whereas the former is endowed with cost of creative production, largely borne by the aspiring artist himself/herself. However, both are characterized by high concentration of talents and creative activities. As many cultural    58industries have a winner-take-all market, only the fortunate few can finally work themselves out of obscurity. Even then, they may still have to wait for extended periods before they can become successful. Under such circumstances, the supporting environment of the cluster in the form of material and symbolic resources is crucial. Critical material resources can be space (low-rent lofts or other kinds of spaces, space functionality, and display venues), visibility, as well as abundance of flexible jobs that fit the artists? lifestyles, since many artists need to ?moonlight? in order to subsidize their artistic pursuits. Here, public exposure and visibility are quite unique and important to cultural industry aspirants. Lloyd also mentions the presence of the internal status system in mature cultural industry clusters that not only helps artists become more visible, but also facilitates cultural industry gatekeepers in picking the ?winners.? However, symbolic resources, referring to a bohemian milieu of creation, help poor creative workers maintain a certain identity, obtain spiritual support, and internal recognition, as well as sustain commitment to an artistic pursuit in the face of economic hardships and uncertainties.   2.2.2.4 Cultural Economy and Urban Regeneration    Over the past a few decades, in the context of deindustrialization and economic recession in Western cities, culture has increasingly been used as an instrument for revalorizing old urban areas (Jeffcutt and Pratt, 2002; Miles and Paddison, 2005). The overlap of cultural development and urban regeneration programs suggests that developers, investors and urban planners, among many others in the ?growth coalitions,? have stepped into the old and relatively autonomous field of art. Mommaas (2004) has noted a recent shift of culture-centered urban regeneration strategies from providing venues for or organizing spectacular events or consumption to a more fine-tuned policy of creating spaces and milieus for cultural production. Mommaas identifies five major justifications for cluster-centered urban cultural strategy: (1) strengthening the identity, attraction    59and market position of place; (2) stimulating a more entrepreneurial approach to the arts and culture; (3) stimulating innovation and creativity; (4) reusing old buildings and derelict sites; and (5) stimulating cultural diversity and cultural democracy. Mommaas views localities as always dependent on a combination of these justifications in a contingent manner, and the final outcomes are usually not the result of clear choices, but rather the ?ad hoc blending of arguments and opportunities? (p. 530).   The critical analysis of Zukin (1982, 1995, 2003) of culture-led urban re-valorization processes suggests that the aesthetization/beautification of urban spaces, as well as many other culture-centered urban regeneration strategies, masks the asymmetrical power among social groups. According to Zukin, a culture-centered urban strategy (together with its implicit aesthetic judgments) is a powerful means of social control. Culture represents a ?power of vision,? or to stress, ?the ability to frame a work of art, a street, a building, or an image of the city in an aesthetically coherent way? (1995, p. 292). However, because of the ?benign? face of culture, culture can be used by the dominant class to attenuate or more accurately conceal contentious issues around local economic development. Culture reproduces social and economic inequality with a more ?lofty? justification. Zukin?s theses add another dimension: political power to the urban cultural economy.   Zukin?s influential work on loft living (1982) warrants special attention in this study because of its relevance to the formation of CICs in Shanghai. According to Zukin, the re-valorization of derelict loft spaces by artists in New York is not a simple market process, but rather a mix of market mechanisms and policy inducements. In the end, property developers reap economic profits. Meanwhile, affluent new middle-class residents obtain new consumption experiences and are also main beneficiaries of this process. The irony is that the inevitable gentrification, together with the hike of property prices, turns the pioneers of these urban processes into the victims of their own    60success. However, given their roles in displacing old industrial users, these pioneers are not totally free from blame. The struggle for space, as argued by Zukin, represents a form of class conflict. This phenomenon is not unique to New York. Similar stories are told by Lloyd (2005) about the rise of Wicker Park in Chicago, a ?neo-Bohemian? district, and by Ley (1996) about the gentrified districts in Canadian cities, in particular, Vancouver.   In comparison, Mommaas (2004) is less critical than Zukin about private-sector involvement in the culture-centered urban regeneration programs. His perspective is different from that of Zukin in that he is less concerned with the political economy of culture-led urban regeneration, and is more interested in the outcome of cultural production because of combining cultural and urban development strategies. Mommaas (2004) views the fact that support comes from the public or private sector as less important than maintaining cultural autonomy and standards. Mommaas believes that economic value is embedded in certain cultural values, and it can only be sustained to the extent that cultural values are not compromised. However, Mommaas acknowledges that external interests can sidetrack cultural values. As the combination of culture and urban development strategies can be conceived in both negative and positive terms, Mommaas concludes that a more reflexive urban cultural cluster strategy is needed.  2.2.2.5 A Closer Look at Bohemian Artists  Zukin (1982) draws attention to the catalytic roles that bohemian artists play in transforming marginal urban spaces into "chic spots.? This is supported by the work of Ley (1996, 2003), which shows that the presence of artists is the strongest statistical predictor of gentrification in four Canadian cities. Artists, as agents of urban change, warrant a closer look.      61Lloyd?s (2005) review of the history and meaning of ?Bohemian? suggest that, at least in their historic origin, Bohemians belong neither to the bourgeoisie nor to the proletariat. Their values represent an affront to the profit-oriented capitalist logic, to the ?organization men? and to the mainstream of society; however, they cannot avoid participating in the commercial market and share with many urbanites a lust for sensual experience and pleasures. Their lives are characterized by great ambiguities and contradictions. As a group, they tend to give up economic benefits and certainty in exchange for the preservation of their creative energy and personal freedom. Cities, particularly central cities, though plagued by many social ills, provide a true sense of liberation and freedom for Bohemians.        Zukin?s (1982) seminal work has helped establish an association between artists and loft living. However, why do lofts have a special appeal to artists? Zukin argues that artists value loft spaces not just for their cheapness, but also for the attractiveness of these spaces. Loft spaces used for residence are paradoxical and ambiguous, they are open and malleable, and their ?raw? quality offers a sense of both history and adventure (Zukin, 1982, p. 60, 65). Ley (2003) offers different arguments. Based on evidence from three Canadian cities, artists value the affordable, mundane, and off-center status of poverty neighborhoods. He suggests that highly marketed live-work loft spaces have not only become unaffordable to artists, but have increasingly lost their authenticity. In contrast, poverty neighborhoods with their diverse social composition and the absence of commodification have become more attractive.   2.2.2.6 Cultural Industries and Globalization   Western cultural hegemony and global cultural homogenization has been a hotly debated issue. Appadurai (1990) proposes a five-dimension analytical framework for conceptualizing global    62cultural flows: ethnoscapes, mediascapes, technoscapes, finanscapes, and ideoscapes. The relationships between these dimensions are disjunctive, fluid, and unpredictable. As Appadurai elaborates, ?[t]he critical point is that both sides of the coin of global cultural process today are products of the indefinitely varied mutual contest of sameness and difference on a stage characterized by radical disjunctures between different sorts of global flows and the uncertain landscapes created in and through these disjunctures? (p. 308).    Scott (1997, 2000a) argues that globalization does not lead to cultural uniformity across the world because cultural production is place-specific even though market tends to be worldwide and consumption has become placeless (see also Molotch, 2002). In reality, globalization and the extension of the market deepen the division of labor and help reinforce localized production agglomerations. These local production systems, built on dense social relationships, not only produce place-specific goods but also become part of the distinctive local culture.   On the other hand, Scott (2005) adds that not only consumers of cultural products are unique in having critical senses, but also that, at a larger scale, societies usually engage in active reinterpretation and hybridization of external cultural influences. In a similar vein, Tomlinson (2004) rejects the wholesale cultural Westernization thesis because it neglects the multitude of complexities and contradictions of cultural flows, as well as the resilience and dynamism of non-Western cultures. Empirically, from the cultural receiving end, the studies of Po (2006) and Muller (2005) on the China and Bangkok advertising industries, respectively, provide support to Scott and Tomlinson?s argument. At the country level, perhaps no case is more illustrating than Japan, whose indigenous culture is dubbed as ?pure impurity? (Iwabuchi, 1998, 2002). Japan?s experience suggests that borrowing, appropriation, hybridization, and indigenization of transnational culture flows can help create a distinctive local culture. In contrast, cultural exports have to adapt to the taste of the receiving end. However, in reality, none of these scholars denies    63the imbalances in the global cultural flows. What they stress is the dynamism and the on-going negotiations among cultures in their global encounters.    2.3 Summary  This chapter is divided into two sections. The first section focuses on the causes and processes of inner city changes, and the second part deals with the cultural economy of cities. In the second part, two bodies of literature are reviewed. The first discusses the mechanism of industrial agglomeration and the second deals with literature on the nature, characteristics, and controversies of cultural industries. Majority of the literature reviewed in this chapter is clearly by Western authors. In reality, the abundance of literature on Western societies poses a stark contrast to the paucity of studies in East Asia, or more specifically China. For example, the processes of Chinese inner city changes are rarely touched upon by China scholars. In addition, literature on cultural industries and, particularly, cultural industry clusters in the Chinese context, is quite limited, although some research has been done on high-tech clusters in big Chinese cities. Western-based theories can serve as a good reference for China studies; however, the unique institutional and historical context of Chinese society also makes such theories incomplete. In the next chapter, therefore, I will review works on Chinese cities with a particular focus on the role of the Chinese state and its relation to the economy and (civil) society. I believe that by combining theories based on Western experience with Chinese perspectives, it will be possible to build a solid foundation for understanding China's urban transformation.       643 THEORIES ON ROLES OF THE CHINESE STATE IN URBAN TRANSFORMATIONS  Pre-1949 Shanghai had a dynamic economy and a cosmopolitan culture. However, the socialist regime instituted in 1949 fundamentally transformed the Chinese urban landscape. Parish and Whyte (1984, p. 358) summarizes the Maoist model of urbanization as having the following distinctive features: (1) strict migration control and minimal urbanization; (2) a comprehensive residential work-unit (danwei) system; (3) a highly developed bureaucratic allocation system; (4) an emphasis on production rather than consumption; (5) a relatively egalitarian distribution system; (6) a rejection of schools as a basic mechanism for identifying talented people; (7) stress on citizen involvement in areas such as public health and social control; and (8) rigid restrictions on all forms of dress, expression, ritual life, and communication that did not conform to the official ideology. These structural changes helped produce a society with the following characteristics: high levels of stability in both employment and residence; uniformity in consumption patterns and lifestyles; excessive bureaucratization; and the widening of the urban-rural divide. Under these circumstances, cities such as Shanghai became ?solidified? and ?stuck in a frame? (Gamble, 2003, pp. 8, 189).  With no less drama, socialist economic reforms launched in the late 1970s led to another wave of urban transformation in China. Anti-urban development strategies were reversed, market forces gradually replaced central planning, the fiscal and governmental system were decentralized, migration controls became more relaxed, autarky gave way to interregional and international trade, and flourishing individualism and differentiation encroached on the collective identities. These urban transformations, as well as their imprint on the urban landscapes, are well documented in    65literature (e.g., Wu, 2002; Lin, 2007; Yusuf and Wu, 1997; Zhu, 2005, etc.). I will not review the details of these transformations here. Instead, I focus theoretically on the ever-changing state-economy and state-society relationships that help explain and, in a sense, are themselves explained by the sectoral urban reforms undertaken over the past 30 years. Similar to many other East Asian countries with strong traditions of state intervention, the Chinese state has always been present in various urban processes. This tradition is what Healey (2004) terms the ?soft infrastructure? of Chinese society. As argued by Lin (2007), the dynamics of China?s urban transformation can be best understood from the angle of state-economy and state-society relationships (p. 9).   State-economy relationships revolve around the interactions between state and the agents engaged in production and consumption. In contrast, state-society relationships deal with the relationships between the state and its citizens in the non-economic sphere. However, that the boundary between economy and society is not clear-cut. Discussion of SOEs and consumer culture can shed light on both state-economy and state-society relationships, even though I put both of them under the section of "State and Economy.? The main reason I distinguish between them here is that the role of the state is not quite the same in these two spheres.    3.1 State and Economy  This section is divided into the spheres of urban production and consumption, and discusses how state-economy relationships are articulated in both.     663.1.1 Production Sphere   3.1.1.1 State-owned Enterprises: Enhanced Autonomy   SOEs organized as cellular and state-penetrated danwei were the basic production units in Maoist China20. Under a central planning system, the central authority exercised direct control over SOEs as well as local production activities through three mechanisms: the physical planning of production, centralized allocation of materials and budgetary control of revenue and expenditures (Feltenstein and Iwata, 2005, p.483). Walder (1986) proposes a ?communist neo-traditionalist? model to theorize state danwei. In the old danwei system, he argues, the mobility of workers was strictly controlled and their lives were completely dependent on the work unit for livelihood and welfare. Within the danwei, workers usually form clientelist ties with their superiors. Inasmuch as the factory was an embodiment of the party-state, the danwei system not only forced workers to be highly reliant on the state, but also rendered them politically vulnerable. Unlike the authoritarian tendency inherent in the ?communist neo-traditionalism? model, the ?work unit socialism? model developed by Womack (1991) suggests a relatively benign role of the state. Although this perspective does not deny the control function of the danwei, it also sees the enhancement of worker interests through generous welfare provisions. Here, the state is not perceived as a necessary enemy of the workers. Workers could acquire a certain degree of bargaining power within the danwei system, to the extent that they had job security and the danwei management was obliged to provide welfare services, even if workers were less than optimally productive. Decision-making therefore had to be based on achieving a certain degree of consensus within the danwei. In some circumstances, SOEs could even distort state directives to protect their own                                                  20 SOEs involved in Shanghai?s CIC businesses were all organized in this way.     67short-term interests (Shih, 1995). Based on a comparison of the two models, Ji (1998) argues that the pre-reform danwei system was more oppressive than emancipating. Nonetheless, welfare within danwei was not provided as a charity; housing, education, and health services were not offered unconditionally. Political cadres and managers of a danwei had to ensure not only that state economic plans were executed, but also that the workers, in their daily lives, conformed to state ideology. The provision of material welfare was simply used to create dependent relationships to prevent dissent and deviance. This very aspect demonstrates the strong state power in the pre-reform danwei systems.    In his study of the Chinese SOEs in the reform era, Ji (1998) summarizes three transformations of SOEs as components of a huge social engineering project: depoliticization, de-statization, and de-danwei-zation. Depoliticization is a process that restores the danwei?s economic function in the division of labor in society. In response, the party and state apparatus originally installed in the work units for forcing Marxist-Leninist ideology have increasingly turned to activities to enlist worker cooperation with the management for greater productive efficiency (Ji, 1998; Shih 1995). This process is by no means drastic, and the state maintains its control over its various aspects, although on a much reduced scale. Ji (1998) uses de-statization to describe the three crucial aspects of changing state-enterprise relations: property links, bureaucratic ties, and remunerative controls. All of these links can be understood as a way to separate businesses from the state apparatus and re-make these businesses as relatively autonomous social entities. In turn, de-danwei-zation describes the consequences of transformation for the individual: driving both managers and workers away from the arms of the state and turning them into agents that pursue self-interest in the expanding economic and social space. As the danwei system constitutes the basic infrastructure of the party state, de-danwei-zation implies ?a significant redefinition of the boundaries between the state and society? (p. 225).      683.1.1.2 Developmental State, State Entrepreneurialism and Growth Coalitions: Symbiotic State-Business Relationships  SOE studies research the changing state-economy relationships from the perspective of former state agents: the danwei. Another body of literature on the developmental state looks at the local government. Oi (1995) argues that the capitalist developmental state, such as that of Japan or Korea, is neither communist nor laissez faire. Rather, the state is actively involved in the economy (such as economic planning) to create a maximum competitive environment and comparative advantages for businesses. China?s post-Mao state-led economic development is both similar and different from such a model, and Oi calls this Chinese version the ?developmental party-state,? or as it is more widely known, ?local state corporatism.? In this perspective, local governments ?treat enterprises within their administrative purview as one component of a larger corporate whole. Local officials act as the equivalent of a board of directors or, more directly, as its chief executive officers? (p. 1132). In the process of developing township and village industries, local governments, nominally the agents of the central state, become their own principals (p. 1144), This helps explain China?s economic success in post-Mao era. Such increased autonomy of the local state is similar to reformed SOEs. Moreover, heavy involvement from the local government in the day-to-day running of the businesses, as well as various forms of public-private co-operation (sometimes involving bending the rules to facilitate economic development), point to symbiotic state-business relationships in which the boundaries between enterprises and the state are not easily drawn.   Much like Oi, Walder (1995) sees local governments as industrial firms. Contrary to neo-classic economic theories that government intervention in the market is destructive for economic growth, he finds that at the local level, where governments are more directly involved in managing the economy than at higher levels, more buoyant and successful enterprises can be observed. His    69explanation of this phenomenon is that enterprises at the local level, although placed under more direct state management, operate with harder budget constraints. This suggests that better market discipline is practiced. From Walder?s perspective, it is submission by the local governments to market rules that have led to successful local economic development.   L. Zhang (2003) deals with the issue of the local developmental state at the macroeconomic planning level. He observes different outcomes from the research of Walder. L. Zhang finds that over-involvement by municipal officials in Shanghai?s industrial development has failed to achieve desired development. This view echoes the thesis of the ?dysfunctional state? that is reviewed later in this document. Taken at face value, L. Zhang might have arrived at different conclusions from Walder. Further analyzed, his argument actually confirms Walder?s respect for market discipline by the state to bring about industrial success. While Walder (1995) provides examples of the state submitting to market discipline, Zhang provides examples where the state violates or avoids market principles. In a similar vein, Xu and Yeh (2005) suggest that the supposed ?entrepreneurial? behavior of the Chinese local state in fact runs counter to market discipline and that ?entrepreneurialism? is a misnomer. These studies seem actually to underscore the power of market forces, although, superficially, the state appears to be exerting greater influence on outcomes.  Parallel to the concept of ?developmental state?, many scholars also note that local governments and public institutions quite often set up and directly manage large number of profit-oriented enterprises (Duckett, 2001; Leaf, 2005b; Shih, 1995;) and Duckett (2001) calls this phenomenon ?state entrepreneurialism?. According to Duckett, ?state entrepreneurialism? is distinct from ?developmental state? (or ?state corporatism?) as the latter involves ?the local government as a whole facilitating the development of the local economy by providing supportive infrastructure and conditions for enterprises, whether state, collective or private.? (p.30, emphasis mine) or    70propping up certain industrial sectors with high potential of growth (p.31). Therefore, this type of pro-market state involvement is supposed to bring about tax revenue and hence benefit certain jurisdictions as a whole. In contrast, in the ?state entrepreneurial? model, the direct investment and involvement in risk-taking businesses by individual departments of the government tends to be fragmented and is aimed at earning profit for the departments concerned and it exists only in a semi-legitimate way (p.24). In addition, the motivations behind the developmental state at the local level are usually government revenues under the new context of fiscal decentralization (Jin, et al., 2005; Oi, 1992;) and the local carders? political career (Li and Zhou, 2005) while ?state entrepreneurialism?, as argued by Duckett, can be interpreted as a strategy for the central state to overcome political obstacles in the administrative reform (e.g. outrage redundant bureaucrats). Therefore, the unorthodox (or semi-legitimate) activities of the state departments acquiesced by the upper level of government is a result of economic-political negotiation and compromise among different tiers of the government (2001)21. This helps explain the pragmatic and undisciplined nature of the Chinese state or what X. Lu ( 2000) calls ?booty socialism.?22  The ?pro-growth coalition? and ?urban regime? theories applied to Chinese circumstances has shed light on the symbiotic relationships between state and economy. From an institutional perspective, Zhu (2004, 2005) tries to explain the gradualism of China?s urban land reform as an attempt to preserve the old system while mending problems of low productivity. Although the state is authoritarian in nature, it needs political legitimacy. In a gradualist reform, the local state gains greater autonomy. To pursue economic growth, it forms pro-growth coalitions with reformed SOEs that have property interests, cashing in on ambiguous property rights and discretionary land-use planning. Such a development model, though deemed transitional by Zhu, is reflective of                                                  21 Some scholars do not actually make a clear distinction between the ?state entrepreneurialism? and ?developmental state? model, for example, both Wu (2002, 2003)) and Xu and Yeh (2005) use the term ?entrepreneurialism? to refer to the concept of what Duckett (2001) means ?developmental state?. 22 X. Lu (2000, p.289) proposes a typology of state roles in the economy. He categorizes state roles in terms of whether the economy is state-centered or market centered and whether the state is disciplined or not. In this typological scheme, China occupies the quadrant of state-centered economy and undisciplined state while US represent a market-centered economy and disciplined state.     71the heavy involvement of state power in the urban property market and the state?s strong links with the business sector.   Tingwei Zhang (2002b) has tried to apply Western regime theories in Shanghai?s urban development. Identifying both economic and political dimensions of coalition building in the original model, he argues that in terms of economic dimension, the local state in Shanghai takes the lead since it controls major resources. In contrast, in the American case, because of private ownership of property, business interests enjoy dominion. At the same time, Shanghai?s experience suggests a very weak political dimension, noting that communities have been largely excluded from state-business partnerships. Tingwei Zhang reveals a clear hierarchy of power structures in urban development processes that begin with the local state, processed downstream by the business sector, and then to the society. This mirrors well the discussion of Wu (2002) regarding the new governance structures in Chinese cities culminating in the ?entrepreneurial state,? with society playing a relatively minor and passive role.      Looking beyond the concepts of ?growth machines? and urban regimes, Lin (2002) questions the tendency of using single-factor economic rationales in interpreting state development policies. He argues that the state-engineered urban transformation is useful for both growth and non-growth purposes (such as maintaining political stability). This view portrays an even more powerful state than the Chinese version of the regime theory suggests. Lin believes that the state does not simply court market forces to achieve growth, it can also work against market principles to achieve certain non-growth goals.    Lin is not alone in stressing the stronger power of the state in its symbiotic relationships with businesses. Han (2000) argues that the state dominates in the decision on the timing, pace, and configuration of Shanghai?s development, although the locus of power has changed from the    72central to the local state23. However, it should be stressed that the heavy hand of the state in urban development has been accompanied by the changing source of power. Wu (2003) explains that when the role of the state as owner of production eroded, it sought legitimacy from local entrepreneurialism. Indeed, the determination of the state to hold on to power has never been shaken. What has changed is simply the means to achieve the maintenance goals of the regime, articulated in the changing state-economy relationship. In the reform era, the state power has not simply remained strong; it has even been strengthened because of the massive economic resources it has been able to muster.  To summarize, strong state power in the production sphere of local development is a lasting theme, although opinions differ in terms of the degree of dominance and effectiveness. Some tend to interpret the current state of affairs as reflecting the will of the state, while others would see a more interdependent and symbiotic relationship between the state and business. Notably, some macro-level studies (e.g., L. Zhang, 2005; Han, 2000, Walcott and Pannell, 2006) tend to treat the state as a monolithic entity, viewing the local state as simply an agent of the central state. This view exaggerates state power as the local state to certain degree represents local interests as well. This issue is further discussed later in the section about state-society relationships.   3.1.2 Consumption Sphere  The revival of consumer culture in Chinese cities, and especially in Shanghai, offers an important perspective to examine new dimensions of consumption experience; for example, appropriating symbolic values of goods and getting satisfaction from the very act of making a purchase (Gamble, 2003). In contemporary China, the burgeoning consumer culture has become another terrain where                                                  23 The power shifts from central to local states indicates the growing power of the society as Chinese local states are not fully agents of the central state. See discussions in section 3.2.2.    73state-economy and state-society relationships are being articulated.   Gamble (2003) mentions that Maoist ideology, its socio-economic policies, as well as its strict surveillance and systems of coercion, precluded the emergence of popular consumerism in the pre-reform era. As the old state infrastructure collapsed and commercialization and commodification deepened, consumerism rebounded strongly. Whether this outcome was planned or unexpected is still open for debate. However, more importantly, the party state now sees the post-reform consumer boom as benign because it serves state purposes. Domestic consumption helps stimulate economic growth, reinforcing the legitimacy of the state; consumer satisfaction dissuades political engagement; and consumption patterns divide the society into discrete status groups, thereby deconstructing the collective identity and solidarity. In this regard, consumerism is seen as ?an opium to the masses? (p. 163). However, in cities such as Shanghai, consumption is also practiced as a way to articulate independence, self-identity, and agency. These new forms of consumerism ?undermine the state because they help fashion identities beyond or at least less amenable to its reach? (p. 164). The state may find individual consumers increasingly impervious to its control and manipulation (see also Davis, 2005).   3.2 State and Society  Thus far, I have covered literature focusing on the urban economic sphere. Next, I will turn to state-society relationships. I will discuss three views on state power relative to society.      743.2.1 Perspectives of State Domination   The state domination perspective is particularly relevant to Maoist China. The organs of the party-state penetrated and shaped society according to their ideological and organizational goals. The danwei, which was the building block of both the socialist production and welfare provision system, was the most widely used strategy for imposing state control. This perspective is well covered by literature on Maoist society (e.g., Gamble, 2003; Ji, 1998; Lin, 2007; Parish and Whyte, 1984; Walder, 1986).    Most literature on post-reform China sees state power retreating, allowing for growth in the autonomy of society. However, many authors tend to stress the continuing dominating role of the state. Rosenbaum (1992) writes that reform simply altered the balance between state and society, but eliminated neither the party-state hegemony nor restrictions on expression of grassroots opinions or the public media. He ascribes the imbalance between state and society power to the Chinese propensity to submit to authority and ?the absence of a tradition of acknowledging the rights of individuals against the authority of the state? (p. 23). As for urban governance, Wu (2002) argues that while reform has changed state-market relationships, it has not affected the state-society relationship. Community development programs implemented in Chinese urban areas are driven by top-down directives and are accomplished by the penetration of state power to the grassroots level. As a result, no real civil society has been nurtured in this process. Meanwhile, many scholars look at social organizations. For example, both Rosenbaum (1992) and Whyte (1992) argue that the reform era in China saw a revival of autonomous associational life but most of these civil organizations were apolitical or even anti-political (against political mobilization) (Schwartz, 2004). Saich (2000) also acknowledges that Leninst strategies of control for social organizations are still largely in place in the post-reform China and the more autonomy a social    75group has, the more vulnerable it is to state administrative interference and potential shutdown (p.126).    3.2.2 Perspectives of State Incapacitation   The state domination perspective would argue that the state?s attempts to impose its will at all levels are largely successful and societal power is minimal if not totally absent. This perspective is challenged by a body of literature that stresses the state?s incapacity to carry out its visions alone, without engaging its citizenry; therefore, so the argument goes, there exists a de facto power and agency in the society, despite the fact that the state intends to retain its hand on the levers of control and domination.  A number of scholars have questioned the state?s alleged ability of ?social engineer? (Lin, 2002), and instead stress the unintended results of state policies in shaping social transformations. In this view, reform is understood not as a grand design, but as strategies that are ad hoc, relative, fragmented, and constantly responding to emerging contingencies (Gamble 2003; White, 1998a; Wu, 1997; Yusuf and Wu 1997). Even during the central planning period, decision making was not a strictly top-down process. Bargaining between governments and their subordinate danwei was rather common (Shih, 1995). In the post-reform era, local power has gained more influence, and the mounting off-budget resources /extra-budget resources or ?small treasurers? are just some demonstrations of this influence (Wu, 1997; Jin, et al., 2005; Duckett, 2001).   In his two voluminous books, White (1998a, 1998b) strongly argues for the local and contextual causes of the reform. Instead of looking at what the state wants to do, he pays greater attention to what the state could actually accomplish. Even in the Maoist period, state visions could easily go    76awry at the local level. In the post-reform period, the accumulative countermeasures widely practiced by localities are generally acquiesced to or legitimatized by central leaders at later time because of the state inability to force compliance. White (1998a) sees the central state as the only embodiment of the state will, and the various levels of the local state not as merely the passive agents of the center. He calls for the study of local networks in which mid-level leaders are portrayed as ?hinge leaders,? neither longing to offend the regime at the top nor interested in instigating resurgence from below. Their role is to keep both local residents and superior authorities satisfied with the social conditions, while obtaining benefits from both (such as legitimacy and wealth). When state policies become too oppressive from the local point of view, hinge leaders do not openly challenge their official patrons. Instead, they simply do as they please while taking advantage of the central state?s inability to be aware of what is going on in a country of such immense size and complexity. These passive oppositions and rebellions, although unarticulated, are nevertheless strong enough to override central state intentions.   While White (1998a, 1998b) argues that top decisions are quite often made to legitimize de facto local circumstances, Breslin (1996) stresses that policies are mostly initiated from the top. However, both authors take the view that the state is ineffective in many respects. Breslin uses the term ?dysfunctional state? to characterize the lack of coherence and effectiveness of central policies, and the growing localism and provincialism in the policy arena. Similar views are also found in Yusuf and Wu?s (1997) and Lam?s (1996) theses. Although the term ?dysfunctional? may seem like an overstatement of the state?s incapacitation, given the state?s dominance in many aspects, it nevertheless stresses the agency of the Chinese society. In particular, if we examine the state?s willingness to make compromises in various aspects or the many counter-strategies and illegitimate/semi-legitimate practices commonly found in China but are sometimes acquiesced by the state (see ?small treasuries? in Duckett, 2001; ?informal social organizations? in Saich, 2000), it is not difficult to understand the weakness of state power under many circumstances.      77 White and Breslin?s general discussion about China can also be applied to Shanghai. Large cities such as Shanghai have several levels of local government and administrative powers. The central-local relationships can also be used to characterize relationships between the different tiers of the administrative hierarchy. Shanghai?s "two levels of government and three levels of administration" system in the urban area (Wu, 2002; Tingwei Zhang, 2002b) is simply a microcosm of the Chinese political system. It could be speculated that the lower the level of government, the more likely for it to represent the territory-based local interests and less likely to observe directives of upper echelons of the party state. Lam (1996) argues that the Shanghai municipal leadership represents both central and local interests. However, it is not a united group, and ?most political figures in Shanghai should be viewed more as ?central agents? rather than ?local representatives?? (p. 128). Although the political leanings of the Shanghai Municipal Government may change over time, it is reasonable to expect it to serve as a link between the central state and local interests.  The discussion by Leaf (1998) regarding master planning in China largely lends support to the state incapacitation thesis at the local level. In the reform era, master planning is reasserted to impose state control on the marketized urban development. However, master plans frequently turn out to be ineffective. Tingwei Zhang (2002a) mentions that urban spatial planning in China is quite frequently used to legitimize the development that has already taken place. In reality, planning is led by development, rather than the other way round. The weakness of planning control in Chinese cities points to the institutional incapacity of the Chinese local state to exercise its regulatory powers.       783.2.3 Perspectives of State-Society Inter-penetration and Ambiguity    The perspective of mutual influence between the state and society is implicit in the previous two views, as no scholar who argues for state incapacitation actually believes that the state is completely paralyzed, and no scholar who sees a dominating state believes that the state controls everything. However, unlike the two perspectives just discussed, the succeeding reviewed literature places more emphasis on whether and in what form civil society currently exists in China. These studies are less concerned with the relative strength of state or society, and more concerned with the conceptualization of China?s (civil) society, as well as where the boundaries between state and (civil) society lie.   Whyte (1992) points out that the essence of civil society is its institutionalized (rather than ad hoc or de facto) autonomy from the state. Likewise, Ding (1994) lists four defining features of a civil society: civility, association, autonomy, and openness (p. 296). In its purest theoretical form, civil society is a social realm untouched by state power. Although this pure form may not exist anywhere, Chinese society, to the extent that it can be said to exist at all, is far from the ideal or the current European and American realities.     What characterizes the reality in China is a clientelist model in which societal ?demands and needs work through a rich network of informal relationships? (Lam, 1996, p. 125). Lam argues that as the party state severely prohibits political organization and collective political action, informal particularistic actions based on patron-client relations is the only and most effective means for ordinary Chinese citizens to obtain certain benefits. Under these circumstances, Chinese rarely try to make political demands by seeking peer support or by openly putting pressure on the state.      79Two traditions influence the Chinese state-society relationships. First, under the Confucian tradition, Chinese people were ?enmeshed in the hierarchies and networks of mutual networks of obligation and propriety? (Whyte, 1992, p. 80). Everyone had his/her place in the social hierarchy, guided by an unquestioned moral superiority at the top. Therefore, maintaining hierarchy and serving the state was equivalent to ?fulfilling social obligations? (Lam, 1996, p. 158), while to discard orthodoxy and official values was seen as leading to unwanted social chaos (Whyte, 1992, p. 81). This interpretation of social existence for individuals was fundamentally different from the Western liberal tradition that saw citizens as independent agents who possess inalienable rights. Second, Marxist-Leninist ideology resonated with Confucianism in that society should be ruled by a superior morality, although the contents of the superior moral had changed. Spurred by its unparalleled organizational and institutional capacity, the Maoist system inculcated the Chinese people with a socialist mindset wherein the state represented society and no society could exist outside of the state (Lam, 1996). Both of these value systems were hostile to the rise of an autonomous civil society. In contemporary China as well as in Maoist era, ?State-society relationship can be characterized not as state against society but as a kind of particular contract between the two? (Whyte, 1992, p. 164).   Given these views, does China have a civil society in some practical or de facto sense, irrespective of state control? Solinger (1992) argues that the reform did not lead to the emergence of a ?civil society? among the business class; instead, it actually further blurred the borderline between the state and entrepreneurs. In the Maoist era, the exclusion of former ?bourgeois? social forces from entering state institutions helped stress the boundaries between the two24. However, in the reform period, as suggested by the local state corporatism and state entrepreneurial models, both business people and officials became entrepreneurs, and mutually beneficial exchanges bound them together. Both sides were positioned to preserve such ambiguous and interdependent relations                                                  24 Similar situation also applies to intellectuals or artists, as discussed by White (1998a, 1998b).     80because ?a return to the regime based purely on central planning and resource allocation would undermine newfound opportunities now enjoyed by cadres, whereas a leap to a fully open and unobstructed market would deprive the most successful merchants of their special inside channels? (p. 130). However, Solinger is not explicit on whether the current state of affairs represents an interim state moving toward an independent merchant class, or if it is a permanent feature. The reality in China today does not suggest the former. In another paper, Solinger (2003) suggests the fragmentation of the Chinese society. She interprets ?Three Represents? of the Communist Party as signaling three disparate urban classes: upper class (entrepreneurs), middle class (intellectuals and professionals), and working class. Therefore, the state-society relationship is stratified into ?three very dissimilar party-state strategies towards three distinct status groups? (p. 951). This stratification consolidates the symbiotic bond between the state and entrepreneurs; fine-tunes the middle class in order to both court them and prevent their resurgence as a coherent political force; and finally, controls the working class to avoid its emergence as an autonomous body.      Is ?civil society? even a useful concept in China? White (1998a, 1998b) avoids using the term in his two volumes on China?s unstately power. He gives a critique of the concept of ?civil society? and the related concept of a ?public sphere? by saying that both these concept follow a premise that ?the main or only way to know why things happen is to perceive the consciousness of the people being studied, and such an awareness is readily communicable? (1998b, p. 639). However, in reality, much unstately power in China exists outside of consciousness or without any articulation.      Instead of viewing society as a polar opposite of the state, a more useful framework for analyzing China?s political structure is probably the ?institutional amphibiousness? of Ding (1994). This term characterizes the interpenetration of different forces within institutions as well as the indeterminacy of institutional functions. According to Ding, institutional amphibiousness can take    81the form of both institutional parasitism and the institutional manipulation or conversion. The former are usually initiated by societal forces, but have to fall back on the state for support or protection, while the latter are often established by the state, but become co-opted by the critical forces of diverse purposes. According to Ding, these blended organizations stand as ?both for and against? the state (p. 313, emphasis in original). The ?state versus civil society? model only sees opposition forces from outside of the state; however, institutional amphibiousness framework assumes the possibility of erosion of state influence from inside the state as well (p. 315).     Saich (2000) also notes the symbiotic relationships between the Chinese state and social organizations. He points out that despite the formal control exerted by the state on social organizations, the latter are able to devise strategies to negotiate with the state ?a relationship that maximizes their [social organizations?] members? interests or that circumvents or deflects state intrusion.? (p.125) Therefore, China?s social organizations can be seen as ?embedded? in the state system (p.139) and state-society relations, assuming multiple forms and always appearing fluid, ambiguous and messy, should be examined as a moving target.   While Ding and Saich focus on organizations, Solinger?s (1994) study is based on one of China?s urban underclass: urban migrant populations (sometimes called ?floating population?). She finds the same kind of ambiguity and indeterminacy in this group of people, although she uses the term ?civil society? to refer to them. As Solinger contends, on the one hand, floaters seek their freedom regardless of state control suggesting certain degree of state incapacitation. On the other hand, they unwittingly support the state, allowing its perpetuation by contributing to its cause of economic development. Roberts (2001) supports Solinger?s thesis by providing empirical evidence that migrant workers independently make rational migration decisions regardless of the restrictions imposed by certain state policies.        82Another useful conceptualization that suits Chinese circumstances is ?the third realm? proposed by Huang (1993). Similar to many scholars, Huang considers that the dichotomous opposition between the state and society inherent in the concepts of ?public sphere? and ?civil society? has not been true in China since the late Qing Dynasty. Therefore, he proposes a trinary conception integrating the third space between state and society. This ?third realm? is not static. According to Huang, in Maoist China, ?the third realm? underwent ?state-ification,? while in the post-reform era, socialization or ?de-state-ification? took place. However, despite these tugs of war between state and society, ?the third realm? remained separate and distinct. This third realm represents the large fuzzy areas sandwiched between the realm of state and the realm of society, melding and blending the influences of both.  3.3 Summary  This chapter reviews literature on urban transformations in China and Shanghai. The purpose is not to describe detailed urban experiences, but rather the institutional foundations of transformations. In the economic realm, reform has forged a marriage between capital and the state, giving business firms much more autonomy and power to make decisions. However, in the non-economic sphere, although individuals have gained more independence in their private domain and the state has been incapacitated in many circumstances, institutionalized civil society has not appeared in the Chinese context. While symbiosis characterizes state-business relationships25, characteristics on interpenetration, indeterminacy, and ambiguity provide for state-society relationships. Another difference of the role of state in the two spheres is that the state?s submission to market forces may be largely intentional (i.e., the state chooses to), while the                                                  25 Also note that X. Lu (2000) has suggested predatory roles of the Chinese state in the economy as evidenced by the systematic corruption in the country. The seeming contradiction should be resolved by looking at the whole picture. While many businesses benefit from the state influence and support, others are disadvantaged because of their lack of connections with the bureaucrats.      83state?s decreasing influence on society tends to be inadvertent (i.e. the state has to). In other words, market power is institutionalized, while societal power is de facto. In the reviewed literature, state-business relationships are most often seen from the ?harmonious? perspective, stressing the shared interests between the state and business communities. However, for the state-society relationships, most studies approach the issue from ?conflicting? perspectives, acknowledging the different goals pursued by the two entities, despite their interdependence and interpenetration. However, these subtle distinctions are not absolute and conflicts between the state and the business sectors or a shared destiny between the state and the society remain, even though both sides may act opportunistically.   Built on the theoretical understandings of post-industrial transformations and the institutional context of China, I will turn next on the historic context of Shanghai?s industrial development. Industrial activities on many Shanghai?s CIC sites may be traced back to the treaty port era. Therefore, in Chapter 4, I provide a historic overview of Shanghai?s (post-)industrial transformations in the past one and a half centuries. Special attention is paid to the spatial dynamics of the city?s industrial sector.       844 FROM CRADLE OF INDUSTRIALIZATION TO CREATIVE INDUSTRY CLUSTERS  ?Study the past if you would define the future.? ?Confucius, the Analects  To understand Shanghai?s industrial restructuring today, it is important to look at its economic history, as this will help shed light on the institutional context of today?s transformation. The economic history of Shanghai covers several periods: the pre-1949 period (establishment of industrial base); Maoist period (industrial expansion); and post-Maoist period (industrial decline and restructuring). In this chapter, I examine the development trajectory of Shanghai?s industrial development, as well as its spatial character.  4.1 Background  Situated at the mid-point of China?s eastern seaboard and in the delta of the Yangtze River, Shanghai had established itself as a thriving regional trading center before it was forced open by foreign powers during the First Sino-British Opium War in 1840. Following China?s defeat in the war, the Nanjing Treaty was signed by the British and Chinese Qing Dynasty Government on August 29, 1842. The treaty not only ceded Hong Kong to Britain, but also allowed the opening of five Chinese seaport cities, including Shanghai, to international trade. On November 17, 1843, a British Consulate was opened in Shanghai, marking the official opening of the city to the world. A few subsequent unequal treaties further expanded the economic privileges enjoyed by foreign    85powers.   As a result of these events, international trade in Shanghai increased almost 20-fold between 1844 and 1860 (Ding and Shen, 1997, pp. 5051). Thanks to its advantageous location, Shanghai soon overtook Guangzhou as China?s leading international trade and shipping center. The rise of these sectors also benefited insurance, finance, and warehousing, as well as the manufacturing sectors in ship repair and packaging. An important industry based on foreign technologies, ship repair nurtured the embryo of Shanghai?s modern machinery industries. In addition, Shanghai?s strategic location and transportation advantages also allowed the city to gain easy access to relatively low-cost raw materials, fuel, advanced machinery, and the domestic and international markets.     Shanghai?s industrial development was closely related to the city?s entrep?t role. As a trading center, Shanghai was flooded with goods from all over the world. The availability of new products from overseas not only satisfied the demand of an increasing number of foreign sojourners in the city, but also provided Shanghai citizens new consumption experiences. When local demand for certain imported products reached a critical level, import substitution was the natural outcome. The introduction and development of many Shanghai consumer industries (e.g., wheat flour, matches, cigarettes, soap, rubber, etc.) followed this trajectory (Ding and Shen, 1997; Huang and Lu, 2000).  The city accumulated large sums of capital, not only from trade-related activities (usually in the hands of foreign trading companies and Chinese so-called home front door comprador business people), but also from the wealth brought by rich migrants from outside the city. Refugees of peasant uprisings thronged to Shanghai from surrounding areas. Foreign concessions26 (Map 4.1),                                                  26 On November 29, 1845, the first foreign concession in Shanghai was established by the British based on the new ?Shanghai Land Charter.? An American concession was also established initially but was merged in 1863 with the British Concession to form the International Settlement. In 1849, the French Concession was established (Ding and Shen, 1997, p. 290). Although foreigners did not have the right to own land in the concessions, they could lease the land in perpetuity. Being protected by    86which enjoyed better security as well as the "rule of law" (another Western import), were favored locations for relatively well-off Chinese merchants and other affluent people. Some of the refugees, including Qing Dynasty bureaucrats, landlords, rural gentries, and so on, possessed great wealth. Some of this wealth was turned into industrial capital via the mediation of Shanghai?s fledging financial market. However, poor rural migrants also came to the city in droves, many of them finding jobs as unskilled workers for the thriving manufacturing sector. In addition, the increasing number of foreigners attracted to the city by its untapped economic potential brought with them production technologies and modern management expertise. In short, the huge stock of wealth and Shanghai's abundant labor resources created propitious conditions for the take-off of Shanghai?s manufacturing in the following years.                                                                                                                                                                 foreign consulates, foreign concessions had independent institutions to manage their own municipal affairs.    87Map 4.1: Foreign Concessions and Industrial Areas in Shanghai (1932)? Source: X. Chen, 2008, p.40. ? X. Chen, by permission.  Note: Whangpoo River and Soochow Creek are the old transliterations of Huangpu River and Suzhou Creek respectively. The blue areas are industrial areas and the dotted line denotes the boundary of foreign concessions.   Over the next 50 years, foreign capital established a number of utility companies in the foreign concessions, including gas works, power plants, telephone companies, and water works, among others. Although many of them were initially built with an intention of serving affluent consumers, they also proved to be essential inputs for Shanghai?s fledgling modern industrial sector.      884.2 Shanghai?s Industrial Development before 1949  4.2.1 Industrial Development  Before 1949, Shanghai?s industrial capital came mainly from three sources that competed among themselves and benefited from one another.   1) Foreign Capital  Accompanying the large volume of international trade in Shanghai was the infiltration of foreign capital into the city?s fledgling manufacturing sector. Before the First Sino-Japanese War (Zhongri Jiawu Zhanzheng) broke out in 1894, foreign industrial investment was not legitimized by any of the treaties. This restriction, however, did not prevent Shanghai's de facto foreign industrial establishments from proliferating to a total of 7827.   China?s defeat in the First Sino-Japanese War in 1894 resulted in the signing of the Treaty of Shimonoseki (1895). The treaty granted Japanese nationals the rights to establish manufacturing facilities in the open trading ports. This right was soon extended to other foreign powers as well. The legitimization of foreign investment in manufacturing greatly stimulated industrial production in Shanghai. From 1895 to 1913, foreign investment in manufacturing grew more than fivefold, which translates into a 10.3% annual increase. During the First World War (1914-1919), although                                                  27 Before the first Sino-Japanese War, unequal treaties signed between China and foreign powers only allowed foreigners to engage in trading activities in Shanghai, therefore establishing manufacturing facilities was forbidden by the law. The existence of de facto foreign manufacturing sector was attributable to the fact that Qing government was weak in power and vague in its attitude toward foreign industrial investment. As long as foreign industrial interests did not constitute a competitive threat to government backed industries, to avoid political conflicts, the Qing government generally did not intervene. Therefore, large-scale foreign industrial interests existed in many sectors. This is a case of China?s institutional ambiguity in Qing Dynasty.     89investment from European powers had slowed, Japanese and American companies increased their presence in Shanghai, particularly in tobacco and textile production (Ding and Xu, 1997, pp. 5-12). By 1928, foreign investment in manufacturing was nine times that of in 1894 (ibid, p. 13). Foreign companies controlled major industrial sectors in Shanghai, such as cotton/wool spinning and weaving, cigarettes, food and beverages, soap, shipbuilding, machinery, and many municipal utilities (e.g., power generation, gas, and fresh water). A good example was Unilever?s soap factory in Yangshupu along the Huangpu River, which at that time was boasted as the largest of its kind in the Far East. Today, its long-span shop floor is still kept intact as a heritage site.   2) Domestic Private Capital    Industries established by domestic private capital lagged behind those of foreigners (Huang and Lu, 2000). Before 1894, Chinese private companies were small in both number and scale. Although foreign companies were in competition with Chinese interests, many historians acknowledge the beneficial spillover effects from foreign firms to the Chinese establishments. The introduction of the newest business and managerial ideas in the city was credited to the adventurous new foreign companies. By holding stocks in foreign companies or forming partnerships with them, Chinese entrepreneurs had a chance to learn new skills in industrial and business management. According to Ding and Shen (1997, p. 280), in the 1880s, it was common for the Chinese to hold more than 40% of the stock in a foreign company, and many even held the majority. Aside from management and technological assistance, being a foreign company in name could also help Chinese industrialists avoid interference from corrupt bureaucrats who frequently milked Chinese private business establishments for personal gain. In addition, foreign companies also trained industrial workers who might eventually work for Chinese companies. By 1894, domestic private interests already had investments in many industries, such as ship and machinery repair, printing, paper, flour, silk thread, cotton textile, matchstick production, leather, and so on.    90However, most Chinese companies were dwarfed by foreign establishments in scale. In 1894, the average capital investment of a domestic private establishment was only 6.6% that of a foreign company (Huang and Lu, 2000, p. 10). Nevertheless, compared with other cities in China, Shanghai not only had the largest concentration of foreign manufacturing companies, but also the largest number of Chinese private industrial establishments (Huang and Lu, 2000).  After 1895, there was also a dramatic increase in the number of private Chinese companies, although their growth was less prominent compared with that of foreign counterparts. This was attributable to new policies and the changing political environments. First, the supportive policies made by the Qing Government after 1895 helped promote the private sector. Second, the subsequent new capitalist regime of the Republic of China launched in January of 1912 stressed the importance of strengthening the manufacturing sector of China as a way of modernization, and provided a new impetus for the industrialization of Shanghai. Third, the political and economic conditions brought about by the First World War also greatly benefited Shanghai?s domestic private industries. While some foreign companies returned to their home countries, Chinese private interests cashed in on such opportunities. In addition, the wartime shortage of major industrial products (e.g., flour) in the international market gave additional boost to Shanghai?s industrial production. This period proved to be the ?golden age? of Shanghai?s bourgeoisie (Berg?re, 1989). Fourth, the resistance against foreign invasion in the country helped tilt Chinese consumers? preferences in favor of domestic goods so that Chinese private companies were able to capture a greater market share. From 1928 to 1931, there was a peak in new factories using Chinese private capital, following major anti-Japanese demonstrations. Fifth, during the Anti-Japanese War (1937-1945), after the foreign concessions declared their ?neutrality? in the War, many of the Chinese businesses moved to Shanghai?s foreign concessions to take advantage of the relatively peaceful environment. During this period, domestic private capital was widely seen in industries such as cotton spinning and weaving, silk filature, flour, cigarettes, machinery,    91and power generation, among others.   Although Chinese private capital registered rapid increases after 1895, its disparity with respect to foreign companies in terms of equipment, production technology, and market share was enlarged. Between 1928 and 1933, foreign companies expanded 200%, while domestic private companies expanded by only 19 % (Huang and Lu, 2000, p. 254). In addition, Chinese companies tended to be more labor-intensive, producing primarily low-end products. According to Ding and Xu (1997), in 1928, the average size of foreign companies was 24.2 times that of their Chinese counterparts (p. 13).     3) Bureaucratic/State Capital   The Chinese state had long had a hand in Shanghai?s industrial production. China?s long-held self-conception as a superpower had been destroyed by the country?s defeat in the two Opium Wars and the subsequent humiliation suffered in the unequal treaties signed with foreign powers. Enlightened officials in the Qing Dynasty began to realize that economic reform was the only way to save the Qing Regime. Hence, the ?Westernization Movement? was launched to build up China?s modern industries, particularly, its heavy industrial sector. The Movement set out to establish China?s military industries, but civilian industries benefited from this state effort as well. In the early days, companies were mostly ?government establishments?28 (guanban). In the later years, they usually took the form of ?private establishments with government supervision?29 (guandushangban), reflecting a reduced role of the state in economic activities, in name at least if not in practice. Shanghai was the most important center of the ?Westernization Movement,? and a                                                  28 In the form of ?government establishment,? the state was the owner of the company and management teams were comprised of state officials.   29 In the form of ?private establishment with government supervision,? (1) the government organized the stock subscription by private capital; (2) the government could provide certain preferential policies and, in case of insufficient private capital, the government could lend capital to the establishment; (3) the management team was comprised of both government bureaucrats and private industrialists or only of government-assigned industrialists; and (4) The final say on management issues of the company lay with the Qing bureaucrats. (Ding and Shen, 1997, p. 475)    92number of important companies were established there during the Movement because the city?s strategic location and trading function could facilitate the importation of western machinery and metal inputs badly needed in manufacturing30.  Unlike the spontaneous development of Chinese private industries, the Westernization Movement was a state-led industrialization effort with enlightened Qing Dynasty bureaucrats, such as Li Hongzhang, serving as important agents of change. Although institutional ambiguity of these ?bureaucratic companies? frequently plagued their day-to-day operations, these early state efforts helped inject huge amounts of capital into China?s heavy industries, which usually required resources that went beyond the means of private interests (Huang and Lu, 2000).     Before the First Sino-Japanese War, China?s industrialization was heavily reliant on government capital, both in military and civilian sectors. After 1895, private businesses grew in influence. Many large state-linked companies established under the Westernization Movement underwent transformation. The trend was toward greater commercialization and privatization. However, from the start of the Anti-Japanese War in 1937 until the 1940s, bureaucrats in the Nanjing Government (national government) tightened their control on private capital, preventing private companies in Shanghai from gaining greater influence (Coble, 1986).   In short, Shanghai occupied a prominent position in China?s early industrialization. The city not only saw the birth of many of the country?s new industries (particularly during World War I and the 1920s-1930s), it also built China?s most complete array of manufacturing industries. Before World War II, approximately 85% of all forms of the manufacturing activity established in China could be found in the city (Huang and Lu, 2000, p. 26). No other city in China could compete with                                                  30 These companies included the biggest ammunition plant (Jiangnan Machinery Manufacturing Bureau) and the biggest textile company in China (Shanghai Machine Textile Bureau). The Chinese names of these companies all bore the term ?bureau,? suggesting the state?s influence in these companies and the institutional ambiguity of bureaucratic industrial establishments.    93Shanghai?s industrial might. In the 1930s, the city?s industrial products accounted for over half of China?s total (Jiang, 2002, p. 3). In 1947, Shanghai's 7,738 factories accounted for 54.9% of the country?s total number (Huang and Lu, 2000, pp. 96-97). In addition, the city?s manufacturing sector also employed many technical and managerial talents, many of whom had received their education in the West or Japan. Managerial science was also popular among firms, including Chinese establishments. For example, F. W. Taylor?s books on scientific management were first translated and introduced to China by Shanghai industrialist Mu Ouchu, who had received his Master?s degree in the US and had been one of Taylor?s students31 (Huang and Lu, 2000).  The expansion of industries in Shanghai could also be observed in the city?s occupational trends. In 1895, Shanghai had approximately 37,000 industrial workers. By 1933, the number had risen to approximately 350,000, an 8.5-fold increase. In comparison, total population in the city increased from 900,000 to 3.4 million, a less than 3-fold rise (Huang and Lu, 2000, p. 224). These figures also underline the importance of industrialization in Shanghai?s early urbanization experience.  In the pre-Maoist period, the Shanghai industrial sector leaned heavily toward light industries, while heavy industries, together with their advanced technologies, were greatly underdeveloped. When the People?s Republic of China was established in 1949, Shanghai?s heavy industries produced only 11.8% of the city?s industrial products. And small firms (defined as those with less than 30 employees), most of which had few technological capabilities and could only produce low-end consumer products, accounted for 74.9% of the total firms (Huang and Lu, 2000, p. 212). The business turnover rate in Shanghai was extremely high. According to a survey conducted in 1931, a textile firm at the time typically stayed operational for an average of only four years and three months (Huang and Lu, 2000, p. 232).                                                  31 In this respect, Shanghai?s mature commercial publication sector must take the credit for spreading the knowledge widely used in the city?s industrial production.    94 4.2.2 The Spatial Dimension  Accompanying Shanghai?s trade and industrial development was the growth of docks and warehouses along the Huangpu River and Suzhou Creek. In the 1860s, a large part of these warehouses and docks were owned by foreign trading companies, while others were leased out to smaller companies that lacked sufficient capital to build their own facilities. Later, due to lack of space and the dramatic rise in land prices in the central part of the city, new dock, and warehouse construction moved northward along Huangpu River, all the way up to Hongkou District and Yangshupu Area (now Yangpu District). This not only took advantage of the cheap land available in the new place, but also to allowed access to the relatively smooth riverbank and deep-water conditions. Suzhou Creek served mainly as a transportation route for domestic trade, particularly with areas in the Lower Yangtze Delta. Docks and warehouses built along the Creek were served by boats smaller than those on the Huangpu River. The building of docks and warehouses along Shanghai?s two major water transportation corridors was both a result and a cause of industrial investment in the surrounding areas.   By the 1930s, several industrial agglomerations had already been formed along the two rivers. Due to the high land prices in the center of concessionary areas, the majority of industrial facilities were located along the border of foreign concessions adjoining Chinese territories (See Map 4.1). In 1926, the Shanghai Transportation Commission identified Shanghai?s three industrial districts in the ?Development Plan for Shanghai Region,? which were located in the Western, Eastern, and Southern sectors of the city (Shanghai Urban Planning and Research Institute, 2007) (Map 4.2). Compared with the other two districts, the Eastern Industrial District (EID) enjoyed from both transportation advantage (i.e., it was situated along the lower end of the Huangpu River, in close    95proximity to the Yangtze River and the East China Sea) and the large number of docks and warehouses that had been built in both areas. The building by foreign powers of the Yangshupu Road, a transportation artery of the city, was an added advantage. The EID therefore grew into the largest of the three industrial districts in Shanghai. EID also had a larger concentration of companies established by both bureaucratic and foreign capital; hence, scales of companies in this area were much larger compared with those in the other two districts. Textile, shipbuilding, machinery, and big infrastructure companies, which usually rely on bulk material (such as coal or steel) shipped in from other parts of China or overseas, were concentrated in this area.   The Western Industrial District (WID), second in scale among the three major industrial districts, was situated on the banks of Suzhou Creek, a tributary of Huangpu River. This area was heavily invested by Chinese private interests and it concentrated production of consumer goods such as textile and flour. Before the 1920s, land price in this area was quite low; however, because of the continued investment and the area?s proximity to the centers of Foreign Concessions, land prices in WID began to exceed those in EID by 1907. In the 1930s, the average land price of WID in the south bank of Suzhou Creek was approximately twice that of EID (Dong, 2004, pp. 11-12). Years later, high land values turned out to be an obstacle to EID?s further expansion.  The Southern Industrial District (SID), located along the upper stream of Huangpu River and to the South of the French Concession, was the smallest in land area among the three major districts. With a less advantageous location, land prices in this area were the lowest of the three and the intensity of investment in this area was not as high as elsewhere. This area was dominated by shipbuilding and infrastructure companies. In addition, the Lujiazui area in Pudong (now Shanghai?s new financial center) was home to some foreign industrial companies; however, the municipal government did not identify it as a major industrial area, perhaps because of the obstacle of cross-river transportation (Dong, 2004).      96Map?4.2: Industrial Land in Shanghai (1930)? Source: Shanghai Urban Planning Design and Research Institute, 2007, p.15. ? Shanghai Urban Planning Design and Research Institute, by permission.  Note: The names of the two major rivers were added by the author. The marked areas indicate industrial land. The different colors denote different types of industries on the original map.  To some degree, the spatial distribution of shanty housing reflected the location of industrial facilities. Shanty housing was spontaneously developed to accommodate the influx of poor industrial workers and various kinds of coolie laborers. In 1925, most of the shanty housing of the International Settlement was located in Yangshupu and Pingliang Road in close proximity to the major industrial establishments in the EID. Two major areas of shanty housing in the Western part of the city were adjacent to the SID (Ding and Xu, 1997).     974.3 Shanghai?s Industrial Development between 1949 and 1978  4.3.1 Industrial Development  The launch of the communist regime in 1949 re-directed the economic trajectory of Shanghai. To turn a capitalist into a socialist system based on state ownership of industrial capital, the national government designed different strategies to transform the three types of business enterprise in existence at the time. First, semi-government industries established by bureaucrats in the former Nationalist government before 1949 were automatically nationalized32. Second, for the 910 foreign companies still in operation, some occupying dominant positions in their respective sectors, the communist government tried to use administrative orders, taxation, and financial means to place them under control (Jiang, 2002, p. 7). Third, for the domestic private companies, the government first helped them recover from the devastation of the war. However, after 1952, the Communist Party began to introduce the so-called Gongsi Heying Program, which forced private companies to form partnerships with the state in the hope of expanding public ownership in commerce and manufacturing without disrupting production (Jiang, 2002).   In the early days of the People?s Republic, light industries dominated Shanghai?s industries. In 1949, the textile sector alone produced 58.6% of the city?s total industrial products (Jiang, 2002, p. 8). When the first Five-Year-Plan began to be implemented, emphasis was placed on heavy industries because they were regarded by the Party State as consumption-oriented and therefore ideologically oriented toward the decadent capitalist order. Over the next five years, Shanghai?s heavy industries increased nearly twofold, compared with a mere 71.1% increase in light industries. As a result, the proportion of heavy industries in manufacturing climbed from 11.8% in                                                  32 Under the Nanjing Government, numerous industries were controlled by Kuomingtang bureaucrats.    981949 (Huang and Lu, 2000, p. 212) to 31.3% in 1958 (Huang and Lu, 2000, p. 8).   Between 1956 and 1965, Shanghai?s industrial system experienced further restructuring. To bring the system in line with the communist vision of a ?modern? economy, many small-scale factories or proprietorships were either forced to close down or were merged with larger establishments, while others were relocated to areas outside Shanghai City. Selected small-scale repair shops were injected with state capital and transformed into key enterprises. In addition, a range of heavy industries was developed in accordance with the national economic plan.   To court the masses, which were the Communist Party?s alleged political base, the Party State also began to build the socialist welfare system, which was integrated with the industrial transformation of the country. Danwei was established to implement the state economic plan as well as provide basic welfare to workers, including housing, healthcare, and childcare.     4.3.2 The Spatial Dimension  Since 1949, following national industrial development strategies, many of Shanghai?s factories and industrial workers/technical personnel were relocated to the country?s inland areas as a strategy to narrow regional disparity. By 1956, Shanghai had sent 270,000 industrial workers, including over 28,000 technological personnel, to the country's western regions. In the following year, 195 factories were moved out of Shanghai. Beginning in 1966, the government sent more industrial enterprises and personnel inland to build the so-called Third Front in response to the perceived threats to national security (Jiang, 2002, pp. 10-11).   The exodus of Shanghai?s manufacturing facilities, however, did not result in the debilitation of    99the city?s industrial muscle. With new investment, the city remained the country?s top industrial center. By the 1970s, Shanghai had contributed approximately 25 % of the country?s revenue, much of which came from industrial production (Z. Lin, 1994, cited by W. Wu, 1999). In addition, the city also produced numerous national brand names. For many people, the name ?Shanghai? conjured up the image of quality products, including many consumer goods.   A major characteristic of the central planning system was that the state not only determined the kind, amount and time of production, but also the spatial location of investments. As the leading industrial city in the country before 1949 and as a "cash cow" for the central state thereafter, Shanghai was the preferred location for many of the country?s key industrial projects. It needs to be noted that due to the central planning role of the state, a lot of manufacturing land allotted to powerful state-owned enterprises free of charge were located in the central part of the city. Like many other industrial cities in China, Shanghai had a larger proportion of industrial land in the central city than their peers in the West under the market system (Hsing, 2010, p.36). To accommodate large-scale industrial investment, the city not only expanded the size of the industrial districts that had been formed before 1949 and build new sites in the central city, but also planned many new suburban industrial zones. In addition, the Municipal Government planned five satellite towns (i.e., Minhang, Wujing, Jiading, Anting, and Songjiang) for further industrial expansion. In 1972 and 1978, the two industrial satellite towns of Jinshanwei Petro-Chemical Town and Baoshan Steel Town, respectively, were added (Shanghai Urban Planning Design and Research Institute, 2007, pp. 46-52). Map 4.3, which shows Shanghai?s industrial land in 1981, is suggestive of the city?s industrial might. Compared with Map 4.2, a dramatic increase in the city?s industrial land between 1930 and 1981 is evident. Spatially, new industrial facilities not only occupied more prime land, but also spread out more into the outlying areas (e.g. urban fringes). It is evident that new manufacturing facilities had turned less dependent on the two river corridors, suggesting the decline of the relative importance of water transportation in the city?s space    100economy.    Map 4.3: Industrial Land in the Central City of Shanghai (1981)? Source: Drawn by the Author based on information in Shanghai Atlas, 1984, pp.149-150.  Note: Industrial land and built-up area are marked by a dark brown and green color repectively. This map does not show industrial land in the distant suburban areas or the satellite towns/cities.      1014.4 Shanghai?s Industrial Restructuring in the Economic Reform Era  4.4.1 Industrial Restructuring  After years of socialist industrialization, the limits to industrial expansion gradually became apparent. First, equipment owned by old establishments became outdated; according to one source, at the end of 1970s, 40% of the equipment used in the light industries in Shanghai had been purchased in the 1930s and 1940s (Jiang, 2002, p. 15). Second, poor infrastructure, owing to years of disinvestment and physical constraints in the central city, imposed further limit on the potential growth of Shanghai?s inner city industrial districts.   Economic and institutional reforms in price schemes, urban land uses, and business management all served to expedite the industrial decline of the city. First, in the central planning era, Shanghai?s manufacturing sector, had enjoyed special protection. The state price regulation system ensured that SOEs could obtain cheap and adequate raw material (usually agricultural products) while enjoying high sale prices for their final products. However, with the deepening of economic reforms, control in commodity prices was gradually lifted, thus eroding the price advantage long enjoyed by state-owned firms. Second, the commodification of urban land because of the urban land reform starting from the 1980s helped raise the opportunity costs of industrial production, particularly for firms occupying prime locations. For many firms, it became more profitable to engage in real estate than in manufacturing33. Third, blaming the low efficiency of SOEs as a cause of China?s economic backwardness, the government was determined to push state-owned companies to become market-efficient. Although state subsidies for SOEs were never completely                                                  33 Lands occupied by SOEs were acquired administratively free of charge under the central planning system.     102eliminated, a series of enterprise reforms helped transform the fundamental functions of state-owned companies from the government?s administrative arms to economic entities, which viewed the pursuit of profit as their ultimate goal. In Shanghai, these enterprise reforms involved substituting profits for tax34, experimenting with the responsibility system and stock system in the 1980s, and instituting the modern enterprise system35 in the 1990s (such as reorganizing the SOEs, establishing the state asset management system, relaxing the bureaucratic control on management issues, etc.). Enterprise reforms helped reduce state control on SOEs, granting SOEs more decision power in business operations, not only in terms of the kind and quantity of products produced, but also on the number and type of workers retained.  This modern enterprise reform warrants further explanation as it is important for understanding the restructuring of Shanghai?s SOEs in the 1990s, which produced vast amounts of vacant space in the inner city. Basically, modern enterprise reform transformed Shanghai?s old bureaucracies, which were responsible for sectoral management (such as the Textile Industry Bureau, Metallurgical Industry Bureau, Light Industry Bureau, Building Material Industry Bureau, and others), into several large state stock-holding or asset management companies to represent the state in exercising its ownership right over SOEs and their assets (such as industrial land occupied by SOEs). Therefore, after the reform, old bureaucracies became purely economic entities, at least in name. In the meantime, an upsurge of mergers and acquisitions among SOEs took place, resulting in the formation of many big conglomerates or industrial groups in the city. Such restructuring was intended to straighten out property rights, transform old SOEs into profit-seeking entities, reduce SOE liabilities, and safeguard the value of state assets. In the                                                  34 In the old system, state-owned enterprises (SOEs) must remit all of their profits to the state, and the state was responsible for redistributing the revenue for new investment or social welfare. In the reformed system, SOEs paid taxes to the state and could retain certain part of their profit for their own uses. Under the new system, SOEs exert greater influence on various kinds of company expenditures.  35 Former state-owned enterprises used to operate on the basis of vaguely defined property rights. Profit was not necessarily their ultimate goal, because they had to assume a variety of social responsibilities and carry out administrative functions. The goals of establishing the modern enterprise system were to define property rights clearly, to improve corporate governance, and to make state-owned enterprises an efficient commercial entity in the market economy (Jiang, 2002).    103process, many small companies that had been struggling to make ends meet were closed, acquired by other firms, or relocated. By the end of 1998, 80% of the SOEs in Shanghai had completed their ownership reform and restructuring, resulting in 915 mergers and 113 bankruptcies, reducing the total liabilities of SOEs from 80% to 55.5% of their total asset value (Jiang 2002, pp. 68-69).   Government industrial policies also contributed to the decline of many industrial sectors in Shanghai. In the 1980s, Shanghai began placing greater emphasis on tertiary activities. These activities had been despised during the central planning era but had increasingly been perceived as key sectors of a modern city in the reform period. In 1990, Pudong New Area was opened. By 1991, the municipal government voiced its ambition of building Shanghai (Pudong and Puxi combined) into an economic, trade, finance, and shipping center. The government wanted to replace the old image of the city as a big workshop with one of glittering office towers. However, the manufacturing sector was not completely forgotten because the government perceived manufacturing activities to be the foundation of the service sector. Therefore, internal restructuring of its industrial sector characterized the trajectory of Shanghai in the 1990s. With the decline of traditional manufacturing such as textiles and metallurgy, the municipal government began promoting industries with relatively low energy and material inputs, lo