‘Pearl has lost its shine’: Shanghai expats eye the exit | Business and Economy

Taipei, Taiwan – As Shanghai’s strict lockdown begins its second month, expats are heading for exits, a trend that in the long term could threaten the city’s status as a global business hub. bridge.

The harsh government restrictions caused rare criticism from foreign business groups and led to the United States ordering the evacuation of all non-emergency staff at its consulate.

The British Chamber of Commerce has estimated that international schools are trending to lose 40% of their staff by the time the upcoming school year gets underway.

In an online survey aimed at foreigners earlier this month, 85% of nearly 1,000 respondents said they were considering leaving China due to the lockdown.

Alex Duncan, founder of Shanghai-based marketing startup KAWO, told Al Jazeera: “This has been a long time coming. “There has been an increasing massive exodus since COVID first began. But this shutdown has forced those who have been considering leaving for a while to make a final decision.”

This trend suggests that Shanghai may be following the trajectory of Hong Kong, which has experienced a wave of migration of foreign residents and businesses amid severe and strategic declines in rights and freedoms. The harsh “no COVID” action has made the city separate from the world. over two years.

With the highest concentration of foreign business activity of any city in China, Shanghai’s fate may further test investor confidence and the overall business environment of the economy. second largest in the world.

Shanghai Skyline
Shanghai is home to the most foreign business activity of any city in China [File: Aly Song/Reuters]

“Hong Kong was also once a gateway to China for foreign companies, but as China has grown… Shanghai has become a stronger base for business activities and today more than 700 foreign companies has regional headquarters in Shanghai,” Kenneth Jarrett, senior China adviser at Albright Stonebridge Group, told Al Jazeera.

“The foreign business community plays an important role,” added Jarrett. “Foreign companies account for 20% of Shanghai’s employment, 50% of R&D and 67% of the trade value of imports and exports, according to government statistics.”

Bill Russo, founder of Automobility, a consulting firm focused on China’s auto industry, described Shanghai as “irreplaceable” for the foreign business community.

“There is no other place in China that is close to foreigners in terms of a favorable business environment to operate,” Russo told Al Jazeera, adding that China has allowed the market The global auto market has acquired new life in recent decades.

Russo said he and many other entrepreneurs feel lucky to be part of China’s once economic miracle but the country is losing its luster.

“China has done it, and we need to credit it, but I’m sad to say that I’m not sure if they can do it again,” he said.

Long term trend

The pandemic is accelerating a long-term trend. The number of foreigners in Shanghai is down more than 20% from 208,000 in 2011 to around 163,000 in 2021. The drop is even more severe in Beijing, where the number of foreign residents has dropped 40% since from 2010 to about 63,000 last year.

Russo said he was surprised to attract the attention of locals during his last visit to the capital, a rare occurrence when he lived in Beijing from 2004 to 2013.

“You’ve been weird again,” he said, asking if a similar change could happen in Shanghai.

Jarrett, an adviser at Albright Stonebridge Group, said that while there was reason to be concerned, it was still too early to declare an exodus from Shanghai.

“China is a strategically important market and one (most foreign multinationals) has a long-term commitment,” he said. “We could see an accelerated effort to further localize senior management.”

Cash flow also seems to be localizing. China has experienced an unprecedented outflow of foreign capital in recent weeks. A survey by the American Chamber of Commerce concluded that most US companies in China have essentially frozen their investment plans for 2022.

“Not only does this impact foreign capital inflows into China, but we also see many Chinese startups turning away from the international market, where they used to be, to raise money,” said Russo. domestic capital,” said Mr. Russo.

The attraction of Chinese capital coincides with the growing preference of VC firms for home-grown entrepreneurs.

“There is a pervasive feeling that we (foreign entrepreneurs) no longer offer our own advantages,” said Duncan, the startup’s founder. “Now only locals can really succeed in China.”

This change comes after the maturation of China’s domestic market, which now requires less input from international investment than it did in the early years of rapid growth, Duncan said. This also reflects the changing character of Shanghai’s service sector.

“You certainly wouldn’t set up a business targeting foreigners these days,” he said.

Chinese President Xi Jinping delivers keynote speech at the opening ceremony of Boao Forum for Asia via video link
Chinese President Xi Jinping has pledged to maintain the country’s draconian “no-COVID” policy [Kevin Yao/Reuters]

Growing anger and frustration in the foreign business community has done little to change policy. Despite increasing economic and social costs, Chinese President Xi Jinping has repeatedly defended a “zero-COVID” approach, saying at an economic forum last week that the priority should be “protect people’s lives and health”.

“The point is to make sure what’s happening doesn’t become permanent,” Ker Gibbs, president of AmCham Shanghai from 2019 to 2021, told Al Jazeera.

“The Chinese authorities seem to have made their decision on how to manage COVID, and there is little we can do to influence that.”

“I did my best to get them to treat COVID as a global problem… COVID sees no borders, and neither does vaccines…” Gibbs added. “China should have approved the highly effective mRNA vaccine a year ago, regardless of its origin. Now they are stuck.”

Business groups’ best hope is to be able to convince authorities to adapt, rather than abandon, the controversial policy aimed at minimizing economic disruption, Jarrett said. On Monday, authorities said they plan to move to more targeted enforcement of restrictions in smaller areas around confirmed cases.

“So you will find that the (commercial) chambers are making specific recommendations about logistical obstacles and the movement of people and providing the government with a reality check on what measures to take. may not work as intended,” he said.

Duncan says there doesn’t seem to be a consistent view within the government on the need to retain foreign businesses and talent.

“The Shanghai Bureau of Foreign Investment is not happy with this situation and still wants to keep Shanghai open and remain a vibrant, multicultural global hub on a par with New York or Paris, but,” he said. they are “against more restrictive authorities, like immigration”.

Russo, a New Yorker, said Shanghai has lost the charm that once reminded him of his home city.

“If anything unfortunate has happened in the past few months, it is that the pearl has lost its luster,” he said.

“People are going to places where they have the best chance of living like before, they are trying to get back to normal. We’re not sure what it’s going to be like on the other side and we’re not there yet… but if this is (China’s) new normal, many others will leave.”

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