They’re wrong. Hypermodern Shanghai is very good at one thing: business. For many ordinary Chinese, the true variety and chaos of the People’s Republic is most concentrated in Beijing. People swarm here from all over the country, legally or not, lured by the opportunities, the possibilities and the sense of cultural ferment. “Beijing has students, artists, officials, executives, entrepreneurs–all coming and going, all buying things, all looking for places to live. It’s a great marketplace,” says Pan Shiyi, a former bureaucrat from one of China’s poorest provinces who has transformed himself into one of the capital’s top real-estate developers.

Chinese can reinvent themselves here–even as the city perpetually reinvents itself. Just now, residents–including China’s top leaders–are waiting nervously for the International Olympic Committee to decide whether the 2008 Games will be held in the Chinese capital. But Beijing has already launched one of the most audacious urban makeovers the world has ever seen. If the job goes ahead as planned, the total cost is expected to top $20 billion. And that’s only a part of an ongoing transformation that extends from lofty corporate boardrooms to lowly hutongs, a process that will continue no matter where the Games take place.

Critics can recite a litany of very good reasons why the Games should be held elsewhere. Beijing’s air is poisonously bad. Its current facilities can’t possibly accommodate all the events, the participants and the spectators. Chinese authorities continue to detain 30 U.S. passport holders without trial, although last week there were reports that two of the prisoners would be declared guilty of spying for Taipei and expelled soon. Meanwhile, they have redoubled their efforts to crush the Falun Gong spiritual movement. (Last week officials confirmed that several sect members had died at a labor camp in Heilongjiang province.) And Chinese police are trying to cleanse the northeastern border regions of refugees, forcibly repatriating an estimated 100 North Koreans a day to face imprisonment, hunger and possible torture at home.

Still, its detractors cannot deny Beijing’s ability to change. No one who’s ever lived here would question the city’s skill at making entire neighborhoods disappear overnight–or reopening them within days as public parks, complete with flowers, grass and transplanted trees five meters tall. The mere prospect of hosting the 2008 Olympics has already set off a frenzy of urban renewal. So far, 22 of 37 major Olympic facilities exist mainly on paper. But a 405-hectare site in northern Beijing, once a district of ramshackle farmhouses, has already begun sprouting five gymnasiums, an 80,000-seat stadium, an athletes’ village, a media center and an exhibition hall.

As dramatic as these transformations may be, they hardly compare with the millions of individual makeovers that occur every day in the sprawling metropolis. Residents say there is no better place in China to make something–and something different–of oneself. “It’s a paradox,” says Zha Jianying, author of “China Pop,” the 1995 book on the country’s cultural transformation. “You’d think Beijing would be suffocating people with government controls, but it’s not that simple.” In fact, the sheer multiplicity of competing ministries and bureaucratic levels in the capital makes it easy for local residents to slip through the cracks, especially when they have personal connections. Authorities in other cities can focus on controlling their citizens without the constant distractions of interdepartmental buck-passing and turf wars.

That kind of freedom has fueled Beijing’s growth as the center of creative arts in China. A range of underground clubs from signless holes-in-the-wall to throbbing nightspots are home to the country’s only thriving live-music scene, with at least twice as many bands as in any other Chinese city. The capital’s art galleries–which have sprung up in hotels, in courtyard mansions and in an ancient city watchtower–are the most coveted venues for aspiring Chinese artists. Shanghai-born curator Chaos Chen says she wouldn’t live anywhere else on the mainland. (She chose Chaos as her English-language first name.) After graduating from one of China’s leading art schools, she decamped to New York, where, among other things, she organized exhibitions of contemporary Chinese art. Last year she returned to Beijing, largely for its motley mix of scholars, business executives, media stars, culture vultures and diplomats. “Ideas, imagination, creativity, resources, diversity,” she says: “Beijing has it all.”

The vibrancy of the arts scene has much to do with the fact that it is constantly renewed. Musician and choreographer Cui Jian, 39, widely known as “the godfather of Chinese rock,” says Beijing residents’ distinguishing trait is “their embrace of outsiders.” His own parents moved to the capital from the industrial northeast in the 1950s. “In fact, all the creative people in Beijing were once outsiders,” he adds. Back in dynastic days, artists and literati flocked to the capital to seek the patronage of palace officials. Now they court the party’s cultural commissars instead. For musicians it’s where the recording industry is based. “Serious musicians eventually all find their way here,” says professional bass player John Ling, who returned to Beijing in 1993 after four years in Sydney.

The city is not just a mecca for artists, though. Even entrepreneurs say that risk-taking–and reward–is greater in Beijing. Many local dot-comers risked everything they had in China’s first Internet startups, of which Beijing boasted more than any other Chinese city. They lost it all, then coolly began again. “Beijing is a thriving, entrepreneurial place,” says Internet consultant Duncan Clark, who moved to the city last year after spending four years in Shanghai. “There’s no fear of change.”

Many of the city’s go-getters are drawn from a vast local pool of talent–the largest in the country. “Beijing residents are the most educated people in China,” observes Wang Xiaodong, a prominent nationalist writer. “Eighty percent of Chinese Ph.D.s are educated in Beijing.” Such a concentration of brainpower has made the city’s Haidian academic district the natural breeding ground for China’s version of Silicon Valley. Beijing’s famous information-technology nerve center is crawling with software programmers and computer hackers, fake-ID vendors and document forgers.

Ironically, though, the city is also where the most potent threats to party control will likely emerge. It’s no accident that the 1989 democracy protests happened here. The city’s university students regard themselves as their society’s conscience, obliged to speak out against oppression (including perceived foreign bullying). “They have that northern bravado,” says Zha. “This can be seen when a big historic moment comes.” The Tiananmen bloodshed, for example, when more than 1,000 protesters gave their lives in the name of democratic reform. “That could only have happened in Beijing.”

Barely five years ago residents feared that illegal migrants, some 3 million of whom fill the city, would destroy its social fabric. They strain the city’s resources, generating trash, using public transport, burning polluting coal bricks for heat and cooking and tapping into dwindling water supplies. But in fact, the hassle and expense of living in the capital has helped keep their numbers in rough equilibrium with the job market.

Unable to legally marry or send their children to state schools, subject to harassment and expulsion when they are caught without the correct papers, many prefer to head back home after they’ve made a bit of money. The regulations can be harsh–and some residents are now arguing that services should be provided to the migrants, who perform jobs most Beijingers would rather not do–but so far they have prevented the crush of population that is gradually squeezing other Asian megacities like Karachi and Jakarta.

In fact, a more immediate threat to Beijing is its own constant and frenetic reinvention. I. M. Pei, the renowned Chinese-American architect, is still mourning the ancient city wall, which was torn down by Mao in the 1950s. “As soon as the wall came down, city development became uncontrollable,” Pei complained during a recent visit to the Bank of China headquarters designed by his firm. “Beijing should’ve learned from Paris.” The Chinese capital would have been better off keeping the old city and building a modern district outside the walls, Pei asserts. The late architect Liang Sicheng argued for such a plan when communist troops first occupied Beijing in 1949. But Liang was overruled by Mao, who envisaged “a forest of chimneys” in the capital.

Still, for now it is precisely the most unruly parts of Beijing that are the most exciting. In the middle of Haidian sits the so-called Tree Village, a migrant settlement as funky and apocalyptic as any dystopian cyberpunk novel. The community ends in a vast open landfill, where ragpickers live in brick hovels with their donkeys and horses tethered outside. Nearby, among the homes of migrant construction workers, repairmen, garbage collectors and itinerant vendors, about 80 young underground musicians from other provinces live in an enclave of shabby brick homes, attracted by cheap rents and proximity to a private alternative-music school that no longer exist there.

“You won’t find a place like this anywhere else in China,” says Wang Ke, a 25-year-old from Guiyang, a hardscrabble city in southern China. He came to Beijing in 1998 and now is the lead singer of a hard-core band called Sick Chrysalis, which signed a recording contract last year. These days the enclave is buzzing with rumors of an underground music festival planned for several days in August on a beach near the east end of the Great Wall. Eighty alternative bands are expected to perform, including 60 from Beijing alone. “A Chinese Woodstock,” says the grinning young musician, his long, dyed-blond hair in braids and a stylized tattoo crawling up one arm.

Wang and his neighbors live in squalid luxury, sleeping until the afternoon and jamming all night in tiny rooms. They nail quilts to the walls in a vain effort to muffle the noise. “F—ing place, I hate it, it’s so messy,” exclaims Zhao Tianyi, a native of northeast China. He’s rehearsing with a band that’s so embryonic it doesn’t have a name. “You can never bring a girl here, because they think you might be a thief or a bad boy,” he says. Shirtless in the summer heat, Zhao and his mates, rings jiggling from their noses and eyebrows, guffaw at the thought of being called “bad boys.” Somewhere nearby, a guitarist launches into a Jimi Hendrix-like riff. A few horses raise their heads above trash piles dotting the landscape. In the distance the pristine office towers of China’s Silicon Valley gleam. It’s in landscapes like this that just about anything can seem possible.