Taipei, Taiwan – As Shanghai’s strict COVID-19 lockdown nears its second month, expat residents are heading out, a trend that in the long run could threaten the city’s status as a global trading hub.

The government’s draconian restrictions have prompted rare rebukes from foreign business groups and led the United States to order all non-emergency personnel at its consulate to evacuate.

The British Chamber of Commerce has estimated that international schools are set to lose 40% of their staff by the start of the coming school year.

In an online survey for expats earlier this month, 85% of nearly 1,000 respondents said they were considering leaving China because of their lockdown experience.

“It’s been a long time coming,” Alex Duncan, founder of Shanghai-based marketing startup KAWO, told Al Jazeera. “There has been a huge growing exodus since the start of COVID. But this confinement forced those who had been considering leaving for a while to make a final decision.

The trend suggests that Shanghai could follow the trajectory of Hong Kong, which has seen an exodus of foreign residents and businesses amid a sharp deterioration in rights and freedoms and a draconian “dynamic zero-COVID” strategy that cut the city off from the world for more than two years.

With the highest concentration of foreign business activity of any city in China, Shanghai’s fate could prove even more critical to investor confidence and the overall business environment in the world’s second-largest economy.

Shanghai has the highest concentration of 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 more solid base for business operations and more than 700 foreign companies have now a regional headquarters in Shanghai,” said Kenneth Jarrett, senior China adviser at Albright Stonebridge. Group, told Al Jazeera.

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

Bill Russo, the founder of Automobility, a consultancy specializing in the Chinese automotive industry, described Shanghai as “irreplaceable” for the foreign business community.

“There is nowhere else in China that comes closest to foreigners in terms of a favorable business environment,” Russo told Al Jazeera, saying that China has breathed new life into the global auto market over the past few years. last decades.

Russo said he and many other entrepreneurs felt lucky to have been part of China’s unique economic miracle, but the country was losing its luster.

“China had it all, and we have to give it credit, but I’m sad to say I’m not sure that’s the case,” he said.

Longer term trend

The pandemic is accelerating a longer-term trend. The number of foreigners in Shanghai has fallen by more than 20%, from 208,000 in 2011 to around 163,000 in 2021. The decline has been even more extreme in Beijing, where the number of foreign residents has fallen by 40% since 2010 to reach around 63,000 last year.

Russo said he was surprised when he caught the eyes of locals during his last visit to the capital, which rarely happened when he lived in Beijing between 2004 and 2013.

“You’ve gone exotic again,” he said, speculating that a similar change could occur in Shanghai.

Jarrett, the Albright Stonebridge Group’s adviser, said while there is cause for concern, it remains premature 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 ranks.”

Cash flows also seem to be localized. China has seen an unprecedented outflow of foreign capital in recent weeks. A US Chamber of Commerce survey found that most US companies in China have essentially frozen their 2022 investment plans.

“Not only is this impacting the inflow of foreign capital into China, but we are also seeing more and more Chinese startups turning away from international markets, where they previously went, to raise capital domestically,” Russo said.

The relocation of Chinese capital coincides with a growing preference of venture capitalists for local entrepreneurs.

“There’s a pervasive sense that we (foreign entrepreneurs) are no longer providing a unique advantage,” said Duncan, the startup’s founder. “That only locals can truly succeed in China now.”

Duncan said the shift follows the maturing of China’s domestic market, which now needs less international investment inflows than during its heady years of rapid growth. It also reflects the changing nature of Shanghai’s service sector.

“You certainly wouldn’t start a business targeting expats these days,” he said.

Chinese President Xi Jinping delivers a keynote speech at the opening ceremony of the Boao Forum for Asia via video link
Chinese President Xi Jinping has pledged to maintain the country’s draconian ‘zero COVID dynamic’ policy [Kevin Yao/Reuters]

Growing anger and frustration within the foreign affairs community did little to change the policy. Despite rising social and economic costs, Chinese President Xi Jinping has repeatedly championed the “zero-COVID” approach, saying at an economic forum last week that the priority must be to “defend life and people’s health”.

“The problem is making sure that what is happening now does not become permanent,” Ker Gibbs, who served as chairman of AmCham Shanghai from 2019 to 2021, told Al Jazeera.

“The Chinese authorities seem to have made up their mind on how to handle COVID, and there’s not much we can do to influence that.”

“I did my best to make them see COVID as a shared global problem…COVID sees no borders, and neither do vaccines…,” Gibbs added. “China should have approved a high-efficiency mRNA vaccine a year ago, regardless of where it came from. Now they are stuck.

Jarrett said the business groups’ best hope is to convince authorities to modify, rather than abandon, the controversial policy to minimize economic disruption. On Monday, authorities said they planned to move to more targeted enforcement of restrictions in smaller areas around confirmed cases.

“So you will see that the chambers (of commerce) offer specific suggestions on logistical obstacles and the movement of people and provide the government with a reality check on measures in place that may not work as expected,” he said. said.

Duncan said there did not appear to be a consistent position across government on the need to retain foreign businesses and talent.

“The Shanghai Foreign Investment Office is not happy with the situation and still wants to keep Shanghai open and remain a vibrant and multicultural global center on par with, say, New York or Paris,” he said, but they “face more restrictive agencies”. , such as immigration”.

Russo, a New Yorker, said Shanghai had lost the appeal that once reminded him of his hometown.

“If there is anything tragic over the past two 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 life as before, they’re trying to get back to normal. We don’t know what it will be on the other side and we’re not there yet. … but if this is the new normal (of China), many more will leave.