Is Shanghai still a top investment destination?

On March 1, one person tested positive for the Omicron variant of COVID-19 in Shanghai, China’s largest city and a major financial center in the world. In less than a month, the virus had spiraled out of control. On March 28, when 4,477 new cases of COVID-19 were reported, the local municipal government launched the city-wide static management that shocked the world. Under the new rules, all traffic was stopped and all citizens had to stay at home. Only essential sectors of municipal administration, finance and production were allowed to continue to operate in a closed loop.

This put foreigners living in Shanghai in trouble because they couldn’t leave the house, so they were short of daily necessities for a while, and the language barrier made the uneasiness even greater. Meanwhile, air traffic control forced most companies to cease operations. On April 12, the US State Department ordered the departure of their diplomats in Shanghai. Some foreign entrepreneurs and their family members applied for leave. April was a difficult time for Shanghai.

On May 11, the last day of China’s May holiday, 1,487 new cases were reported in Shanghai, the first time the number fell below 5,000 in more than a month. As of May 16, the number of new cases was 939. It is time to discuss the city’s investment opportunities as the pandemic has become manageable.

The central government has demanded Shanghai to resume production while adhering to the dynamic zero-COVID approach. Shanghai, the city with the best business environment in China, has published its ‘white list’. On April 29, 1,854 companies, provided they adhere to pandemic prevention and control measures, were allowed to restore production, including international giants such as Tesla, GM, Siemens, Roche, Omron and Nippon. This treatment was only given to them when most of the domestic businesses were closed. On April 23, Elon Musk said on his social media account that Tesla China is doing an incredible job. Shortly before that, Tesla announced it was building its second Gigafactory, primarily for the production of Model Y and other flagship models, in Shanghai, with the goal of producing one million vehicles per year. The American car manufacturer undoubtedly has faith in the city. BASF has been closed since the end of March, albeit with reduced production capacity. After the outbreak of the pandemic, 3M was quickly included in the list of companies for the supply of essential materials and thus increased production as a supplier of medical protective masks for the local government.

Moreover, global financial giants are actually more optimistic than their manufacturing counterparts. As Wall Street banks announce plans to set up branches in Shanghai, Credit Suisse and Goldman Sachs are also writing reports urging investors to buy Chinese companies, as they are currently undervalued. The Financial Times also believes that those ambitious plans rolled out by global investment banks in Shanghai have not been deterred by the pandemic.

Production restoration is not yet in full swing. Some foreign enterprises that have resumed operations are complaining about hampered logistics, the difficulty of repatriating workers and the shortage of production equipment caused by those suppliers not included in the “white list”. But compared to these temporary difficulties, foreign entrepreneurs are more concerned about China’s stance on further opening. On April 29, Chinese leaders reiterated that China will continue the high-level opening, which will bring hope to more foreign companies and investors.

While the pandemic is still raging around the world, China remains attractive for foreign investment. In the first quarter of 2022, foreign direct investment in mainland China, in actual use, increased by 31.7% year-on-year to USD 59.09 billion. The same figure for Shanghai reached $6.628 billion, an increase of 17.8% year-on-year, 6.3 percentage points higher than last year’s rate of increase, reaching a new all-time high.

One group of people who deserve our special attention in this round of pandemic are those volunteers, who have played an irreplaceable role in facilitating massive nucleic acid testing, deliveries of food, medicine and other necessities to neighborhoods, as well as other aspects. Some head of a British company that volunteered in his neighborhood said the phenomenon reflected the urbanization and rise of middle-income groups in China over the past two decades. As UK companies are mainly active in the retail and service sectors, they believe the rise of the middle-income group will certainly create more opportunities for them. There is no reason to doubt that Western products and culture remain attractive among Chinese, especially the middle-income group. A bottle of Coca-Cola can be traded for anything in the neighborhoods of Shanghai during the pandemic. And the members of medical teams who came to assist Shanghai’s pandemic response expressed hopes of having their buses circle the Disney resort without even entering. All these showed that Western products and services are still necessary for the middle-income group in China. Douyin, the Chinese version of Tiktok, also witnessed the registration of a large number of English teaching vloggers in the past month, showing that the willingness of Chinese people to learn more about the West remains unchanged. Surveys show that a large number of high-level executives working in international companies choose to stay in Shanghai, especially those in the daily need and hospitality industry, as they patiently wait for the “revenge spending” incurred after the pandemic in take place in Shanghai.

China’s virus containment measures, including in Shanghai, have caused “disruption on an epic scale,” according to the European Chamber of Commerce. Photo: AFP / Jade GAO

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