YOU do not have to go far in Shanghai to see why British companies are becoming excited about China. The young Chinese drink coffee at Starbucks, talk on mobile phones as small as any you will see in London and use the internet for their news and fashion.

Vivienne Westwood was in town for a catwalk show last week while Fat Boy Slim played at the Typhoon club in the summer. The recorded greeting in the Shanghai taxi cabs is a New York-style over-the-top welcome and a reminder to buckle up in the back.

The place smells of new money and looks like a bigger version of Singapore. Where paddy fields stood on the Pudong side of the Huangpu river 15 years ago, international hotels now compete for light. By night, the neon signs atop office blocks illustrate the invasion of foreign capital. They read Nestlé, Samsung, Canon, Pepsi and Standard Chartered.

Groups of tourists from other parts of China are everywhere. Very few make their way to the museum commemorating the communist revolution; rather more can be found around the corner in the ultra-new Sin Tan Tee complex where Shanghai’s wealthy do not balk at paying £80 for a bottle of decent chardonnay at Va Bene, an Italian restaurant.

Shanghai opened its second airport last month and is completing a high-speed electromagnetic train line to whisk visitors into Pudong within 10 minutes. It all screams “come to Shanghai” and increasingly the rest of the world is ignoring China’s human-rights record and accepting the invitation.

Beijing will have its Olympics in 2008, but Shanghai will have Bernie Ecclestone’s Formula One circus from 2004 and is lobbying hard to secure the Expo trade fair for 2010 ahead of Moscow.

A MENTION of Russia, the last underdeveloped land mass to be billed as the new frontier of capitalism, should set alarm bells ringing among the Brits and other foreign investors. Russia failed to live up to its hype as lorry-loads of Coca-Cola went missing in the vast interiors, counterfeit goods flooded the market and profitability always seemed to be just around the corner.

For its fans in the business community, China really is different. “There are fundamental differences between the situation with Russia three or four years ago and the situation with China over the past 10 or 15 years,” says Sir Keith Whitson, chief executive of HSBC, which, with its majority-owned Hang Seng subsidiary, has 20 branches in the country.

“Russia came out suddenly and dramatically from behind the Iron Curtain whereas China has a history of being pretty successful in developing its businesses — certainly in the coastal areas — in the last 10 to 15 years. Shanghai, Beijing and the coastal cities have been transformed and they are as dynamic as perhaps Hong Kong was a few years ago.”

It is also possible to find recent British entrants to the market that are close to making decent returns. Go beyond the ugly tower blocks that house some of the 12m Shanghai residents (a further 3m are reckoned to be floating members of the city, many of them illegal migrants from the countryside) and you will find one of B&Q’s eight Chinese stores.

Ian Strickland, its managing director in China, reckons the chain will make an operating profit this year and will be at proper break-even next year. The aim — endorsed by chief executive Sir Geoff Mulcahy, whose photo hangs in the reception — is to open 58 stores across China within five years. Even that estimate may be conservative; after all, London, with a smaller population than Shanghai, supports 30.

China’s B&Qs also compare well with Britain’s on operational measures. The average transaction value in Britain is £25, whereas in China the figure is closer to £50, a reflection of the fact that Shanghai residents, who were given permission to buy their own homes a decade ago, tend to buy empty shells. The decision on paint, decoration and kitchen fittings is made afterwards and up to a third of the mortgage loan is allocated towards fit-out costs.

Theft is also less of a problem in China, and not just because of the obligatory security guards who stand aimlessly outside every shop and public building. Stealing is greeted with public humiliation in China, and B&Q’s level of shrinkage — as retailers coyly term disappearing goods — is 0.2% in China against 2% in Britain. And the competition looks weak. There are some Chinese-owned chains but the largest distribution channel consists of one-man businesses operating out of the back of garages. Their stock-in-trade is fake brands and tax avoidance, and Strickland says the authorities’ plans to clamp down on them is music to his ears.