Mon, Sep 27, 1999 page9

• Exiles from falling Shanghai took the city's promise with them

  • By Bill Savadove / REUTERS
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  The Shanghai (上海) my grandfather knew was a glittering financial centre promising fame and fortune to a young banker from one of China's most prominent families.

  That was before 1949, when the victorious Communists marched their peasant armies into the city. The glitter soon faded, banks closed their doors, careers were aborted, fortunes confiscated.

  For prominent families, the choice was to flee or face ruin.

  On a flotilla of ships and boats -- like the one that carried my grandfather, Palmer Sze, to a new life in America -- Shanghai's promise slipped away.

  "I don't regret leaving China," said Sze, now 86, silver haired and living in retirement in New Jersey.

  "If I had stayed, I don't think I'd be living today. A lot of my friends were sent to labour camp, and some of them simply committed suicide."

  In all the hooplah surrounding the 50th anniversary of the founding of the People's Republic of China on October 1, Sze is a reminder of the huge cost of the Communist victory: the brightest minds who fled the country, the wasted lives of countless thousands who stayed behind.

  In many ways, Shanghai -- and China -- have never recovered.

  With its new airport, elevated highway network and the biggest property development on earth in Pudong New Area, Shanghai is again on the move. But fast as it travels, it is still running to catch up with its past.

  Grandfather Sze was born in 1912, the year after the last imperial dynasty was overthrown, in the northeast city of Tianjin (天津) , then a Treaty Port under foreign control.

  His father worked for the railways and the family lived in a grand house on Race Course Road, which boasted a swooping roof known in the neighbourhood as "Napoleon's hat" after its shape.

  Each of the children had their own nurse and the family spent summers in Beidaihe (北戴河) , now a retreat for Communist leaders.

  Grandfather Sze went to school in Beijing (北京), finishing at the elite Yenching (燕京) University before travelling to the United States where he earned an MBA at Harvard.

  After a stint at the National City Bank of New York, he returned to work for the central bank in Shanghai.

  He was a serious young man, too busy for the gambling dens of the old city, the race track, the wild parties in the Cathay Hotel, where the international glitterati of the day would gather -- and where Noel Coward wrote "Private Lives."

  Like others of his generation, he saw opportunities for himself -- and his country -- in a city then known as the Paris of the East.

  Without the Communist takeover, he now laments, "I may still be in China today and have contributed in some limited way to the reconstruction of modern China".

  Even before the Communists marched in, Shanghai's lustre had faded. Its economy was devastated by the civil war between the Nationalists and the Communists and still reeling from Japanese depradations in World War Two.

  Grandfather Sze watched the crisis from his corner office at the Central Bank of China -- the Nationalist government's central bank -- in Shanghai's sprawling Bund financial district.

  "Inflation was just hopeless then," he said.

  "One morning my wife asked me to buy some toothpaste. When I went to the store and asked the price I said, 'That's too expensive' and I didn't buy it. At the end of the day, when I bought the toothpaste, it was around three times the price."

  An ill-timed decision by the government to devalue the currency, the yuan, led to the financial instability.

  In 1946, the exchange rate was cut to 3,300 yuan for one US dollar from 2,020 yuan. There was a rush for dollars and gold and the dollar soared as high as 17,500 yuan on the black market.

  "At that time, all the shelves were empty at the department stores," Sze said. "Everyone hoarded merchandise."

  Disillusioned by what he saw as corruption and incompetence in the ranks of the Nationalists, he shunned Taiwan and opted for the United States, where he taught finance at several colleges.

  China has a different set of economic problems now.

  Over the past 50 years, the government has achieved relative financial stability and, in recent decades, solid economic growth.

  But while Shanghai department store shelves are now overflowing because of a massive glut of consumer goods, the future is again uncertain as China sheds jobs in a shift to a market-oriented economy. People now would rather save than spend.

  China has had negative inflation for 23 months, causing alarm bells to ring for the economy. Decades of lending to ailing state firms have pushed bank bad debts to worrisome levels.

  The spectre of a currency devaluation again hangs over China as Beijing considers ways to maintain economic growth by boosting exports and spurring inflation. Fears that financial instability could spark political turmoil continue to haunt Chinese leaders.

  Shanghai is once again leading the way for China's financial industry.

  My grandfather's former office building now houses the trading floor of the foreign exchange market, opened in 1994.

  Names like the Hongkong and Shanghai Banking Corp are again big players.

  Grandfather Sze never returned to China. But he credits Chinese leaders with making some progress.

  "They seem to have good control of the situation now, but I worry about the bad bank loans," he said.
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