As Shanghai frets about its future, football offers a good distraction

World Cup mania has gripped the city, as it has much of China. There are some people here who are not interested in football, but not many. And with the national team failing to qualify again, most have a passionate interest in every game.

But the time difference has taken its toll. Even screening the afternoon matches from South Africa at 10pm Shanghai time gives problems to a population used to rising early. The later matches come in at an aggressive 2.30am, which means either taking a sickie or having a very quiet day with head on desk.

But there have been benefits. Shanghai Expo 2010, which opened in May with great civic pride, has now been largely forgotten by locals. It cost a massive £30 billion, most of which went on infrastructure development.

But even after that sort of spend, the transport system is staggering under daily Expo visitor numbers of over 400,000. Shanghai suffered five years of construction chaos and now has to contend with serious transport overcrowding as tour groups pour in from all over China. Much to everyone's relief — at least for those of us living in Shanghai — rumours of extending Expo beyond October 31 have been denied.

Football has also taken everyone's mind off the economy and, in particular, the twin obsessions of housing and shares. Beijing has pledged to maintain a stable housing market. This has proved difficult when many see it as the easy way to make money.

But in April, the government an-nounced a package of measures designed to curb speculation. There were also rumours that a property tax might be introduced. Since then, the Shanghai property market has been sitting on its hands. Volumes are down as people wait to see whether this is a temporary glitch or something more fundamental.

The stock market — the Shanghai Stock Exchange is China's leading exchange — has been equally inactive. Prices have dropped to one-year lows and trading volumes have shrunk. Local concerns about the property market, as well as global fears about the euro and inflation, have all sapped investor confidence. The market has lost its momentum.

Agricultural Bank is due to float in mid-July so the government will be hoping that a bit can be found from somewhere. The dual Shanghai-Hong Kong issue could become the largest-ever float. But only if it gets the demand. As the World Cup will be over by then, local investors might just want another sporting opportunity.

In the current world climate, the government needs a successful float to show confidence in the economy. China still has a lot of rebalancing work to do. It must stimulate domestic consumption as export markets decline, while controlling inflation.

Last week's announcements by Beijing on exchange rate policy should be viewed in this context. The dollar peg has gone but there has been no "wham-bam" appreciation in the value of the yuan.

Things will be quietly managed against a basket of currencies, and any appreciation will be gradual. There might even be depreciation. All
typically enigmatic but unlikely to convince hot-money speculators that the Chinese currency is anything but a one-way bet.

Away from football and the wider economic picture, people are quietly optimistic about the Shanghai economy. GDP and retail sales figures have been encouraging and consumption appears to be moving up the value chain into higher-end goods. It's likely that the summer will continue to be quiet in the asset markets, assuming no more shocks. Analysts hope that things will pick up later in the year.