Is Shanghai Still the Best Investment Destination?

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On March 1, a person in Shanghai, China’s largest city and a major financial center in the world, tested positive for the Omicron variant of COVID-19. In less than a month, the virus got out of control. With 4,477 new cases of COVID-19 reported on March 28, the local municipality initiated the city-wide static administration that shocked the world. Under the new rules, all traffic was suspended and all citizens were asked to stay at home. Only the core sectors of municipal administration, finance and production were allowed to operate in a closed loop.

This put foreigners living in Shanghai in a difficult position as they could not leave the house and were deprived of their daily needs for a while, and the language barrier further increased the anxiety. Meanwhile, traffic control has forced most businesses to stop working. On April 12, the United States Department of State ordered its diplomats to leave Shanghai. Some foreign entrepreneurs and their family members applied to leave. April was a difficult time for Shanghai.

On May 11, the last day of China’s May 1 holiday, 1,487 new cases were reported in Shanghai, dropping below 5,000 for the first time in a month. On May 16, the number of new cases was 939. With the pandemic now under control, it’s time to discuss the city’s investment opportunities.

The central government wanted Shanghai to continue production while adhering to the dynamic zero-COVID approach. Shanghai, the city with the best business climate in China, has released its “white list”. As of April 29, 1,854 businesses were allowed to restart production, including international giants such as Tesla, GM, Siemens, Roche, Omron and Nippon, provided they comply with pandemic prevention and control measures. This treatment was only given to them when most domestic companies were shut down. On April 23, Elon Musk said on his social media account that Tesla China is doing incredible things. Shortly before that, Tesla announced that it will set up its second Gigafactory in Shanghai, mainly for the production of Model Y and other flagship models, aiming to produce one million vehicles per year. Admittedly, the US automaker relies on the city. BASF has been operating closed since the end of March, despite its low production capacity. After the outbreak of the epidemic, 3M was soon included in the business list for the supply of essential supplies, thereby increasing its production as a supplier of medical protective masks for the local government.

Moreover, global financial giants are actually more optimistic than their peers in the manufacturing industries. Wall Street banks have announced they will open branches in Shanghai, while Credit Suisse and Goldman Sachs are also writing reports encouraging investors to buy from Chinese companies as they are currently undervalued. The Financial Times also believes that these ambitious plans presented in Shanghai by global investment banks have not been deterred by the pandemic.

Production restoration is still not in full swing. Some foreign companies that have restarted their operations have complained of disrupted logistics, difficulty returning workers and shortages of production materials caused by suppliers not included in the “whitelist”. Compared to these temporary challenges, however, foreign entrepreneurs are more concerned about China’s stance on further opening up. On April 29, Chinese leaders reiterated that China will continue to open up to the top, bringing hope to more foreign startups and investors.

Even though the pandemic is raging all over the world, China remains attractive for foreign investment. In the first quarter of 2022, foreign direct investment in mainland China in actual use increased 31.7% year on year to reach US$59.09 billion. The same figure reached US$ 6.628 billion for Shanghai, up 17.8% year on year, 6.3 points higher than last year’s growth rate and hitting a new record high.

One group of people who deserve our special attention during this pandemic period are volunteers, who play irreplaceable roles in facilitating mass nucleic testing, delivering food, medicine and other necessities to neighborhoods, and other aspects. A head of a British startup who volunteered in his neighborhood said this phenomenon reflects the urbanization and rise of the middle-income group in China over the past two decades. As British companies operate predominantly in the retail and services 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 continue to be attractive to the Chinese, especially among the middle-income group. During the pandemic, a bottle of Coca-Cola can be traded for anything in Shanghai’s neighborhoods. And members of the medical teams who have come to help Shanghai’s fight against the pandemic have expressed hope to allow their bus to travel around the Disney resort without even entering. All this showed that western products and services are still a necessity for China’s middle income group. Also, Douyin, the Chinese version of Tiktok, witnessed the recording of a large number of English-taught vloggers last month, demonstrating that Chinese people’s willingness to learn about the West has not changed. Surveys show that many senior executives working in international businesses are choosing to stay in Shanghai, particularly those working in the daily necessities and catering industries, as they patiently wait for their post-pandemic “revenge spending” to occur in Shanghai.

The European Chamber of Commerce said China’s virus containment measures, including in Shanghai, were causing “disruption on an epic scale”. Photograph: AFP / Yeşim GAO