FOR much of the past two decades, the Pudong New Area, rising from the rice paddies on the east side of the Huangpu River, was the first and last word in Shanghai's quest to become an international center of commerce.

But rapid development has spread now, with other cities in China and Asia vying for the foreign investment, multinational corporations and gleaming skyscrapers that put Pudong on the map as a magnet for blue-ribbon business.

Has Pudong lost its edge?

"Pudong seems to lag behind in tax breaks, investment environment, information transparency and human resources, compared with other advanced cities," said Sun Yongqiang, deputy director of the Pudong New Area Commission of Commerce.

One thing is certain: Pudong can't afford to rest on its laurels. The glittering riverfront face of Shanghai is now home to the regional offices of 160 multinational companies, including Mitsubishi Motors, Kraft Foods Inc, Vale of Brazil and Novartis International AG.

That's half of Shanghai's regional headquarters of global firms all grouped in one zone.

The development drive is often framed as a game of numbers. Pudong, which has already been selected to host the first Disneyland on the mainland, says it wants to attract 75 more multinationals to its shores in the next five years.

Pudong has set its sights even higher. It wants to join the global stakes competing for international corporate headquarters - that ultimate prize of prestige.

Sun said Pudong has its work cut out for it. New policies attractive to multinationals will need to be adopted and the efficiency of government agencies and financial services improved, he said.

Prestige aside, multinational companies bring new revenue sources and affiliated businesses wherever they locate major offices. Nearly 45 percent of Shanghai's foreign-funded research and development centers are sited in Pudong, many tied to global parents.

According to an annual survey of foreign firms in Pudong last year, 125 companies with regional headquarters posted average sales of 808 million yuan (US$123.3 million) in 2009, an increase of 30 percent over the previous year.

That translated to an average 50 million yuan in tax revenue from each regional headquarters.

"Pudong or Shanghai has geographic advantages, perfect infrastructure conditions and a diversified culture that's attractive for many corporate headquarters and staff," said Jiang Ruochen, director of the Top 500 Enterprises Research Center at the Shanghai University of Finance and Economics.

"What's more, Shanghai has enjoyed steady economic growth since the 1990s, which other international cities cannot compete with," she said. "That growth momentum is a magnet to other foreign companies."

Mirror of development

General Motors is one feather in Pudong's cap. The United States car giant relocated its Pacific Rim headquarters from Singapore to Pudong in 2005, eying the coming boom in the domestic auto market. The regional headquarters was upgraded to international operations headquarters in 2009, just as China drove to the top as the largest auto market in the world.

"Pudong is a mirror of the fast development of Shanghai and China," GM China said in an e-mail statement.

"The Chinese and Shanghai governments have focused a lot of attention on Pudong and created a very good investment environment there," the company said.

Fujifilm Group was an even earlier convert. Seeing the potential of China's rapid growth, the Japanese company was among the first batch of multinational companies to set up regional headquarters in Pudong in 2001.

"China joined the World Trade Organization in 2001, which made us realize the promising potential of the country," said Xu Ruifu, vice director of Fujifilm (China) Investment Co.

Xu said one of the big selling points of Pudong was the proximity of the banking industry located in the area's Lujiazui zone, often dubbed "the Wall Street" of China. Japanese companies very much rely on their banks when expanding overseas, he said.

Pudong catapulted itself to the forefront of Shanghai's commercial development by offering incentives to companies interested in locating headquarters in the area. The carrots included tax sweeteners, cheap land, development waivers, help on getting employee visas and promises to cut through red tape.

But yesterday's incentives may not work their same magic in a rapidly changing, more competitive world.

Multinational companies, in the wake of the global financial crisis, have grown more cost conscious. When they now look at Pudong, they see high rents and too few of the lifestyle amenities they need to attract and keep foreign staff. Many people who work in Pudong still prefer to live across the river in older sections of Shanghai that are teeming with entertainment, shopping, medical centers, sports facilities, cultural venues and a hospitable sense of community.

"The unbalanced resources make it harder for companies to attract and keep the professionals they need," Xu said.

Pudong in particular and Shanghai in general always face inevitable comparison with their regional rivals Singapore and Hong Kong, often coming up short in areas such as taxation, local skill pools and openness of markets. Taxes vex foreign firms.

Hong Kong, for example, levies no value-added tax, and its top personal income tax rate is 17 percent. Singapore's top tax bracket is 20 percent. By contrast, the personal income tax in Shanghai runs as high as 45 percent.

"The high personal income tax in Shanghai will drive away firms making decisions on where to locate their headquarters," Sun said ruefully. He also added the companies face problems of education and training of the local work force.

While Hong Kong and Singapore spend 20 percent of their budgets on education, Shanghai is still working to commit 15 percent of its spending on that vital area. Multinationals are always complaining about how hard it is to recruit competent staff.

"Shanghai has relatively rich human resources," said Shanghai University's Jiang. "But it lacks high-end management professionals with comprehensive knowledge."

Market access is another shortcoming in the competition stakes.

China's capital markets are not as open as those in Singapore and Hong Kong. The government still maintains strict controls on foreign exchange, a hindrance for multinationals that want to move money around the world. The stock market remains mostly closed to foreign investors, except for a few select funds.

Shanghai has set itself the goal of becoming the London of the East by 2020. The city government, in tandem with the central government, is slowly moving toward opening its capital markets and instilling more transparency in its financial system. Pudong is hoping to be at the forefront of those changes.

Foreign companies want the pace accelerated and the scope of reforms widened.

"I think Pudong should exempt multinational headquarters from foreign-exchange declarations and approval procedures according to a certain quota based on their business performance," said Fujifilm's Xu. "That would greatly help multinationals improve their work efficiency."

Sun said Pudong is now seeking permission from foreign-exchange and commerce regulators to help multinationals upgrade operation centers into regional headquarters by unsnarling red tape that hinders the integration of purchasing, distribution and sales functions.

Among other ideas on the drawing board, complaints about limited office space in Pudong will be addressed by enlarging the Lujiazui financial zone and allowing more office construction along the Huangpu riverfront.

A new central business district will be created in Houtan on the former Shanghai World Expo site, which is within Pudong's boundaries.

The new area also has plans to construct more than 80,000 square meters of cultural, retail and leisure facilities, interspersed with greenbelts.