How will Shanghai's expat exodus affect the local economy?

Expat news
  • Shanghai
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Published on 2023-04-10 at 13:00 by Asaël Häzaq
At the end of March 2022, Shanghai went under a stringent lockdown. Its 25 million citizens were then unaware of what they would endure for more than two months, even when the authorities announced that they had come to terms with the COVID pandemic. It was mostly the morale of the inhabitants that got affected. Among them were expats who were increasingly worried about their future in the cosmopolitan Chinese city. One year later, China is back on the international scene. Tourists are expected to flow in again. But will the expatriates come back to Shanghai? Many observers believe that the wound will be hard to heal.

When the expat exodus hits Shanghai

On Tuesday, March 28, the Shanghai Bureau of Statistics revealed that 250 000 foreign workers left the city because of China's zero-COVID policy. This unforgiving strategy, marked by repeated tests (up to more than a dozen per day), massive lockdowns, and isolation camps (called "quarantine centers" by the Chinese authorities), was designed to eradicate the virus. It especially struck a population exhausted by repeated confinements. Yet, despite these strict rules, the virus, and especially its variants, continued to spread. Chinese vaccines were not effective enough to counter the epidemic waves. Expatriates and locals alike felt left behind. For the first ones, departure was only a matter of time.

According to the Shanghai Bureau of Statistics, the city was home to 80,000 foreign workers in 2020. A year later, there were 70,000. Another year on, the number dropped to 50,000, representing a worrying 30,000 decline in foreign talent in the city. Although the government is counting on its recent announcements to bring back expats, nothing says that expats will actually stand by the second-world power. The harsh lockdown in the spring of 2022 has left its mark. Those who left do not intend to return, and those who remain are wondering how to deal with the situation.

Consequences for Shanghai's economy

There is significant concern about Shanghai. The city's economy shrank by 0.2 percent in 2022. It was the city's first negative growth since 1978 when the Shanghai Bureau of Statistics began its surveys. According to the bureau, 2021 was already a difficult year, with growth slowing mainly due to health crisis management. The 2022 lockdown in Shanghai further stunned an already stricken city. 

Shanghai's 2022 lockdown caused sales to drop 9.1 percent in retail and online outlets. The city's hotels and restaurants recorded a nearly 22% drop in revenue. This gloomy situation was confirmed at the national level. In 2022, China's GDP grew by only 3% (Shanghai Bureau of Statistics figure). The more pessimistic World Bank forecasts only a 2.7% growth which is still well below Beijing's usual figures. The world's second-largest economy is recording its weakest growth in decades, and everything suggests that 2023 will not see a spectacular upturn because China is deep into an economic crisis.

After 30 years of growth, real estate, which accounts for nearly a quarter of China's GDP, is not recovering from the shocks it has been experiencing since 2021. The country depends significantly on real estate, but the sector is over-indebted. Chinese real estate leader Evergrande alone has $300 billion in debt. Its collapse in 2021 has been a source of worry worldwide. The former number one hopes to repay its debts this year. But foreign investors remain cautious.

Expatriates discouraged by the crisis management

Will recent IMF figures reassure foreigners? In December 2022, the organization placed China as the 2nd country for foreign direct investment (FDI). With 3,578 billion dollars of FDI received in 2021, Beijing ranked just behind Washington with 4,977 billion dollars. But if Hong Kong were to be included, Chinese income from FDI would exceed that of the United States to $6,891 billion. This is yet one more reason for the Chinese Communist Party to accelerate its takeover of Hong Kong. However, these figures do not prevent Chinese growth from stalling. 

Contrary to popular belief, Shanghai remains a Chinese city, one where party ideology prevails over economics, indeed. The cosmopolitan side of Shanghai has often been praised as an open door to a more international outlook and, above all, as a city not impacted by Beijing's decisions. The lockdown reminded us, however, that Shanghai does not have the right to special treatment. As soon as the lockdown ended on June 1, 2022, many expats took the opportunity to leave the country. They were in a hurry to leave while more than 650,000 residents remained confined.

Foreign entrepreneurs are still feeling the effects of this episode and, more generally, of the health crisis in China. They fear they will have to endure further forced outages with no alternative. Even if Beijing reopens its doors to them, they do not necessarily intend to return. Foreign business leaders and investors are reluctant to accept the government's new promises. Confidence will be challenging to restore.

What about those who are staying? Some do so by choice, others by compulsion. They have yet to find a fallback solution or are still hoping to salvage whatever is left of their life in Shanghai so far. However, they do agree on one thing: nothing will ever be the same again.