(Bloomberg) -- A year after the lockdown that made Shanghai a byword for all that was wrong with the country’s Covid approach, China’s most international city is showing the effects of a policy that left the nation disconnected from the world.
Home to most foreign company headquarters and a quarter of China’s expatriate population before 2022, Shanghai has seen an exodus since the brutal two-month lockdown that crippled the city of 25 million from late last March. Foreigners like Xenia Sidorenko, a Russian fashion entrepreneur who has called China home for a dozen years, are leaving and foreign investment and business activity in the metropolis have also dwindled.
“It was just nonsense. With your brain understanding that something absolutely unacceptable is happening and you are still trying to keep calm and carry on,” said Sidorenko, referring to the lockdown period. She plans to move to New Zealand with her husband later this year once she makes arrangements for her firm, UseDem, which upcycles waste from China’s denim industry into bags. “I feel like this is the moment I need to move on.”
China officially ended Covid Zero late last year. But for many foreigners, the experience of being confined to their homes, constantly tested and facing food shortages has irrevocably changed their view of living in Shanghai.
About 25% of Germans living in the city left after the lockdown, while the number of French and Italian citizens registered with their governments each fell by 20%, according to a report by the Shanghai chapter of the European Union Chamber of Commerce in China.
Shanghai has long been a magnet for foreigners wanting to make their fortune in the world's biggest consumer market, with the city's unique level of openness underpinning its role as China’s window to the world. Its avoidance of the kind of lockdowns seen places like Wuhan and Xi’an in the initial years of the pandemic fueled confidence that Shanghai’s immense economic importance would see it avoid the harshest of Covid Zero rules.
But the arrival of the more contagious omicron variant soon shook that faith. What started as lockdowns of individual apartment blocks as cases spread soon snowballed into a lengthy and chaotic citywide shutdown.
Read more: Shanghai’s Moldy Covid Food Packages Prompt Outcry From Public
“The lockdowns took down that almost Disney facade you have here of ‘it’s Shanghai, it’s not China. It’s something different’,” said Logan Rafael Brouse, co-owner of Mexican restaurant Tacolicious in Shanghai's Jing’an district, an area popular with expats. “We already have the faith as we live here still and we didn’t leave. But I think the foreign investors and foreign people are going to be a little bit scared still.”
For many expats, their apprehension is rooted in the enduring memories of food shortages.
Despite owning a restaurant, Brouse found it hard to source food during lockdown and ran out of bottled water at home. He managed to get some of his employees into his restaurant, where they worked and lived as part of a “closed loop” that kept them away from their families. He also delivered supplies to other staff living in dormitories, with people barred from leaving their homes even to shop for food. “We had to get some meat to our staff who were actually starving.”
After last year’s hardships and financial losses, Brouse says his business plan for 2023 is “just survive.”
Read more about how Chinese consumers are spending their money post-Covid Zero
To be sure, Shanghai’s economy, like the rest of China’s, is showing tentative signs of improvement. Spending on food and drink is on the rise, and airports are increasingly busy after borders reopened.
In-person spending during the week-long Lunar New Year holiday jumped 81.7% in Shanghai from a year earlier, and the city’s subway is bustling once again.
Expats are still in high demand, particularly in sectors like artificial intelligence and cybersecurity, according to Jing Yan, a Shanghai-based senior consultant at Kilpatrick who recruits top executives for the China offices of Fortune 500 companies.
“International professionals still want to have the opportunity to work in China,” she said. “They are eager to get involved with one of the biggest economies in the world, with a scale that no other country can compare to.”
Still, foreigners haven’t returned yet, if the real estate market is a guide. Apartments in compounds most popular with expats are being discounted by as much as 15%, said Shanghai realtor Frank Wu.
Even with pandemic constraints gone, foreign companies still face a slew of uncertainties. Geopolitical tensions are high, regulatory crackdowns continue, local brands have become increasingly competitive, and expats’ tax obligations have grown. Burnt by the lockdowns, some firms are looking to invest in other countries to alleviate the risk of being heavily dependent on China.
Covid Zero became a symbol of China's isolation from the world under President Xi Jinping's leadership, and reviving confidence will be tough.
Listen to: Xi Jinping's Credibility in China
For the first time in about 25 years, China isn’t a top three investment priority for a majority of US firms, according to a survey by the American Chamber of Commerce in China, and almost half of those already in the market plan no new investments. The European business chamber has called on officials to undertake efforts to restore Shanghai’s reputation.
“Businesses are concerned that the Shanghai government may take similar drastic actions again with little warning,” said Bettina Schoen-Behanzin, chair of the city’s chapter of the EU Chamber of Commerce in China, who finished quarantine only to immediately enter lockdown. “This underlines the new reality we are facing, or maybe we ignored before — ideology trumps the economy.”
--With assistance from Allen K Wan, Daniela Wei, Amanda Wang, Colum Murphy and Jinshan Hong.
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