These days, Shanghai's theme song is more percussive than it was in the jazz age. Everywhere you go, the drumbeat of jackhammers heralds a city growing so furiously that no one has any idea what it will look like in five years. From 1998 to 2002, Shanghai tore down 15 million square meters of old neighborhoods and developed more than 80 million square meters of new residential land, an amount equivalent to 20% of the city's total residential space. More than 10,000 foreign companies have set up shop in Pudong. Construction cranes loom over new luxury complexes with names like Merlin Champagne Town and Versailles de Shanghai, which house the city's burgeoning nouveau riche, just as Tudor cottages, stuccoed Spanish villas and Art Deco flats did 70 years ago. (A new regulation issued this month, however, requires developers to change all real estate names that are "feudal, aristocratic, foreign and immoral" by next September to those that promote "national dignity.") Energizing this construction site of a city are 3 million migrant workers, 10 times the number of people that flooded California during the entire gold rush. To accommodate this massive human influx, Shanghai plans to build 11 satellite cities by 2010, several with populations of more than 1 million. "This is one of the fastest urban expansions in history," says Long Weiding, an engineering professor at Shanghai's Tongji University.

Shanghai is also luring back families that had fled when the banks and ballrooms were boarded up in 1949. Chief among them are tycoons from Taiwan and Hong Kong, who helped develop the island and the former colony, and are now applying their business acumen to Shanghai. Hong Kong property magnate Vincent Lo shelled out $170 million to build the Xintiandi entertainment district. Down the road from Three on the Bund, at No. 18, once home to the Chartered Bank of India, Australia and China, Venetian architects are busily cleaning panels of Seravazze marble—a Tuscan stone so rare that the restorers say quarrying stopped in the 1850s—in what promises to be one of the most meticulous restorations so far on the historic waterfront. The project, dubbed Bund 18, is the brainchild of Janette Chang, daughter of a Taiwan investor who spent his childhood in Shanghai. Citizens of Taiwan, 400,000 of whom now live in Shanghai, brought $1.7 billion in investment contracts to the city last year, 10 times what they invested just three years before. Bund 18's soft opening will take place on Nov. 20, and Cartier and Zegna will serve as the anchor tenants. By late fall, a restaurant helmed by three-star Michelin chefs, twins Jacques and Laurent Pourcel, will offer contemporary French cuisine, as well as hookah water pipes for a postprandial smoke. "With this project we wanted to create something that is modern but not shiny," says Andrea Destefanis, one of the on-site Italian architects. "Shanghai is an eclectic place with a fusion between Chinese and Western, and we want to preserve that heritage."

With so much buzz surrounding Shanghai, the city has even attracted what is perhaps the most reluctant group to return: locals who left in the 1980s and '90s, when the place was still sheathed in gray. Wang Fenghua got his doctorate in economics at Boston University and never really considered coming back until he visited a couple years ago. "In the U.S. you can lead a quiet and comfortable life," says Wang, now a senior research fellow at the Shanghai Stock Exchange. "But there's an excitement in Shanghai that made me realize I had to return." Adds his Boston University roommate, Wang Yanfeng, who is now back running his own tech firm: "You want to be where the party is, and right now, there's no bigger party than Shanghai." About a third of the total number of China's returnees have come back to Shanghai, and more than 90% of them boast either a master's or doctorate degree. "You can tell this is a world-class city now, because the fashions here are even more expensive than in the U.S.," says Yu Jiadi, who returned to Shanghai just last month after graduating from Harvard's Kennedy School of Government and working at the World Bank in Washington. "What's amazing to me is that there seem to be so many people who have the money to buy all these expensive things."

Bales of money, immigrants of every color, fashions of every hue. The energy that today powers Shanghai's revival cannot help but recall the glory days of the 1920s and '30s. But the city's current turbocharged dynamism differs from the decadence of yesteryear in one key respect. Back then, as the opium dens smoldered and the refugee settlements seethed, there was an almost willful blindness in the way people partied. Bombs were falling; warlords were feuding. Shanghai's response was to put on silk stockings and tango. Today's Shanghai suffers from no fear that it is dancing on the deck of the Titanic. True, there is talk of a real estate bubble; even municipal officials forecast a 10-15% drop in property prices over the next year. And there are fears that the clique of Shanghai-bred leaders who helped shepherd through policies favorable for their hometown are losing some sway in Beijing.

Nevertheless, there is an almost inexorable propulsion to Shanghai's current ascendance. The civilization from which it draws strength is five millennia old, full of countless cycles of prosperity and turmoil. But Shanghai, as a city, is only 150 years young, a patchwork of East and West the vitality and optimism of which embody the very essence of the future. Who can deny Shanghai's role as the 21st century's most happening city? Not British Consul General Robert Urquhart: "Nothing in the world can stop [it] from becoming a prosperous commercial and industrial power." Urquhart uttered those words in November 1948. Less than a year later, the glamorous metropolis had entered its deep sleep. Still, the underlying sentiment remained true. Like so many in Shanghai, Urquhart was merely half a century premature in his prophecy. Today, the party has begun. For real.