Hong Kong handover: New Shanghai swings to the old rhythms

At The Gap restaurant in central Shanghai, no expense has been spared to create the sort of cosmopolitan atmosphere expected in China's style capital. The food may be strictly Chinese, but there are red London phone boxes, walls covered with reproduction Gauguin murals, waitresses in American Country and Western checked shirts and private dining rooms where, surrounded by copies of Millais and Stubbs masterpieces, you can treat your business partners to a feast of Shanghai's famous "hairy crab" specialities for 10,000 yuan (pounds 760) a throw (drinks extra).

The Filipino band offers Kool and the Gang cover versions, until at 9.30pm the resident troupe of sing-song girls - that potent symbol of old Shanghai - takes to the stage to the tune of "Alexander's Ragtime Band". Ask the supervisor how he would describe the style theme for this cultural minestrone, and he answers bizarrely: "It's Luxembourg."

Shanghai's vibrant spirit is back, with all its blithe excesses, and the Shanghainese who can are making the most of it. As Hong Kong prepares to revert to China on 1 July, Shanghai is doing its best to make sure that it can hold its own against its brash cousin. Once again the city is a magnet for the young and ambitious - including Hong Kongers, for whom it offers new opportunities.

Kenny Tang, 33, is typical of Hong Kong Shanghainese who are coming back to the city which their parents fled in 1949, when the Communists took control. This year he opened the YingYang jazz club in a basement which used to store electronic goods. "I want to make Shanghai like it was 60 years ago, a great city," he says. "But a great city needs culture and more artists."

Shanghai's new restaurants and bars are packed, and most of the customers are locals. But it is not just the night life which gives Shanghai the feel of a re-emerging world city; economic reform has spurred a cultural renaissance. Last autumn, the stunning new pounds 45m Shanghai Museum opened in the centre of People's Square, in a Chinese-designed building which resembles an ancient bronze ding vessel. In December, it was the turn of the new Shanghai Library, with storage for 10 million books. Under construction is a flamboyant French-designed opera house, which will be the largest in Asia, and a massive cantilevered sports stadium.

It has all happened in a belated rush. Until 1990, Shanghai was in the slow lane of Chinese reform, overtaken by southern China. Then came the central government's decision to develop the Pudong zone on the east bank of Shanghai's river as China's future financial centre. Foreign invest- ment poured in, and the construction boom has been so overwhelming that since 1991 the city has been sinking by half an inch a year, twice the rate during the Eighties. Here, too, Shanghai cannot help but vie with Hong Kong, with an official "three-phase action plan" to be China's national financial centre before 2000, Asia's regional financial hub by 2005, and a global financial centre in 2010. There are currently about 9,000 building projects.

The younger generation is thriving, with lives reinvented just as swiftly as the skyline. Lin Dongfu, 40, gave up teaching to be a reporter for Real Estate Information, and then found fame hosting a popular TV game show, Test Your Talent. Along the way he became the "voice" for Sean Connery and Gregory Peck when their films were dubbed into Chinese. His great passion now is his bar, Blues and Jazz. "Shanghai - we call it an international city, but we are still short of things," said Mr Lin. But less so than before. "Five years ago, there were no jazz bars in Shanghai." Now there are a dozen, and not only for foreigners. "Chinese also come; they cannot enjoy the music very deeply, but in time . . ."

At the YingYang, Mr Tang agreed that Shanghainese preferred jazz to rock and roll. "Shanghai people are more sentimental and educated than Pekingers," he said. They are also brimming with self-confidence, even arrogance. Professor Shen Weibin, a 60-year-old history professor at Fudan University, explained: "Shanghai people think that if you want to succeed, you have to come to Shanghai for a while and be recognised here," said Professor Shen. Or as Mr Tang put it: "Shanghainese think that people from other Chinese cities are like peasants."

Success is again something to be flaunted - just like Hong Kong. Joining the Shanghai Race Club was the status symbol of old Shanghai; nowadays it might be a $94,000 (pounds 57,000) life membership of the new Taiwan-financed Tomson Golf Course where, according to the hype, the bunkers are filled not with sand but with pulverised white marble.

With this revival, however, has also come uncertainty. The excitement and glamour are back, but so are old social problems. Mr Shen has witnessed the city's ups and downs and describes the mood of Shanghai people these days as "hope mixed with doubts".

The contradictions are everywhere to see; a hardline municipal communist government is determined to maintain control over a capitalist eruption which is enriching half the population while throwing hundreds of thousands of state enterprise workers on to the scrap heap.

A yawning wealth gap has opened up between those fashionably dressed Shanghainese and the legions of newly sacked textile workers. Unemployment among the population of 14 million is chronic as near-bankrupt state enterprises jettison staff, especially older people who find it difficult to adjust.

Zhu Junyi, director of the Shanghai Labour Bureau, has admitted a further 750,000 city workers are expected to be laid off in the next four years. Meanwhile, about three million migrant workers have flooded into town, the work fodder for a city which is being rebuilt by men with spades.

Looming over these contrasts is the might of the Shanghai Communist government. Behind the superficial "anything goes" atmosphere, the old apparatus is still firmly entrenched. The glistening 12-storey New World City department store, for instance, boasts of itself as "the aircraft carrier in the shopping sea". But venture on to the 9th floor administration area and the corridors are lined with doors marked "Communist Youth League", "Party Committee", "Trade Union Committee", and on and on.

Freedom of thought is no more welcome in this neon-dazzled city than anywhere else in China, and over the past three years virtually every remaining Shanghai pro-democracy or human rights activist has been sent to jail.

The city's cultural and material renaissance is taking place within strictly definied limits: while the spirit of Thirties Shanghai may be on the way back, there is little hope of it being any more democratic than its illustrious predecessor.