This pioneering work presents for the first time a comprehensive study of the role of Shanghai in the economic development of China. Shanghai experienced stagnation and setbacks in comparison with other big cities and provinces in South China with the open door policy of 1979 and other economic reforms. In terms of export volume, use of foreign capital and overall economic growth, Shanghai remained behind Guangdong and Jiangsu. The fundamental question of why Shanghai maintained a lead position in the national economy and how it was neglected in the Special Economic Zones established in early 1980 is examined herein. In addition, the benefits of trade reform, comparative advantage, and foreign direct investment in Shanghai's recent expansion is discussed.