Foreigners are leaving China in droves. Does the nation want or need them any more?

The exodus is a sign not only of the heavy toll exacted by China’s zero-Covid policies, but also of the country’s turn inwards as it focuses on domestic expansion
Foreigners are no longer considered vital to the nation’s progress. But the loss of the very people with knowledge, experience and connections to China is significant

Brian P. Klein

Published: 12:30am, 5 Jul 2022

Why you can trust SCMP

Every other day or so, someone is posting about their exit from China on social media. What started as a trickle a few years back has now turned into an exodus of foreigners. They are heading to their home countries after years, sometimes decades, abroad. By many accounts, they won’t be going back.

From exasperation at Beijing’s onerous zero-Covid policies that force people to remain inside for weeks on end, to corporate closures over supply chain issues, the outflow is real. Add to these disquieting events a darkening view of foreigners.

While rising standards of living have brought with them a healthy dose of domestic confidence, nationalistic fervour has shifted sentiment to unnecessarily negative levels. This begs the question, does China want foreigners any more?

The effects of changing political winds are being felt by international firms. European and American business surveys tell the same story of a toughening domestic China market. And the trade numbers back them up. Kearney’s annual reshoring study showed that China’s percentage of US manufacturing imports fell to 55 per cent in 2021, down from 66 per cent in 2018.

Part of this is certainly a result of Covid-19-induced supply chain and shipping problems. But many manufacturers have shifted production to countries like Vietnam not only for logistics issues, but because of rising Chinese domestic wages and a domestic environment tilted increasingly out of level.

Over the past several years, major manufacturers and foreign brands, from Japan’s Toshiba to the UK’s SuperDry and H&M have departed, convinced that better opportunities lie elsewhere.

And while companies enter and exit international markets (Tesco had a rough time in its overseas expansion, pulling out of not only China, but the US and Japan), the exit of an increasing number of major foreign chains and manufacturers points to a broader trend. This will be difficult to reverse. Recent China exits include Amazon’s Kindle business, Airbnb and Yahoo.

While Beijing’s zero-Covid policy has changed recently, with new entry rules that require 7-10 days in quarantine, this is unlikely to attract business visitors who already face rising fares and cancelled flights. That and policy inconsistencies across the country make broader China travel difficult and risky.

A passenger in protective gear arrives at Hongqiao International Airport in Shanghai on June 29. Photo: EPA-EFE

Chinese state media seems to have noticed that the foreign exodus has truly begun. Back in May, when Covid-19 restrictions were at their most severe, op-eds emerged calling on foreigners to stay and take the long view. Trouble is, the long view doesn’t look so rosy any more.

I first visited Beijing as a language student in the late 1990s. Back then, a foreign face was still quite rare. Linger too long in Tiananmen Square and a crowd of strangers would form, eager to take a photograph with you. Western goods like jeans or trainers were a luxury. There were no modern supermarkets.

In the following years, Western firms and their cadre of foreign managers brought more than an unusual face to China. Advanced manufacturing, technological expertise, access to overseas markets, and investment, all grew at a remarkable pace.

Beijing modernised its central business district and razed its historic hutongs. Guangzhou built just-in-time manufacturing where fields once lay. Shanghai’s Pudong district began to resemble cityscapes in Seoul, Tokyo, Singapore and New York.

Tourists view the skyline of Shanghai’s Pudong district from the Bund on January 6, 2020. Photo: Xinhua

Fast forward two decades and foreigners are no longer considered as vital to the nation’s progress. Foreign businesses and expats have noticed the change, not only in doing business, but in politics. Near-term trends don’t look promising as the US-China relationship continues to deteriorate.

Biden administration tariff policies that began under Donald Trump show little sign of change. And there is little to suggest that President Xi Jinping’s plan to create global Chinese companies and displace foreign firms in the domestic market will change, either. That was evident in Beijing’s national policy, “Made in China 2025”, that targeted sectors for growth.

The initiative has been a relative success. Chinese brands from electric vehicles to online commerce now dominate national markets and are even beginning to expand abroad. J.P. Morgan is processing payments for Alipay in the US while US card services still struggle to gain a foothold in China.

Telecoms giant Huawei’s appeal to developing countries also stands out, although advanced industries like chip manufacturing have struggled internationally.

10:19

China’s e-commerce and live-streaming booms are opportunities for private equity, Carlyle Group says

As China’s economy slows and jobs become harder to find, opportunities for foreign business will inevitably decline. Unfortunately, impressions of foreigners also tend to take a turn for the worse under economic stress. That’s as true in the US and Europe as in Asia. Yet it is precisely these times of increased stress that require sustained openness and communication.

Under the long shadow of history, impressions of foreigners in China are still caught in the artificial dichotomy of either friend or foe. Yet, far removed from the exploitative past of foreign powers and their treaty ports, foreigners in recent decades have helped China modernise and provided a useful bridge to cultures around the world.

Expat exodus is bad for China, bad for the US and bad for the world

The country is not only losing expertise and potential business opportunities; China is losing a window into the wider world and a group of people that can help interpret it.

That openness is critical across trade, economic development and political spheres. The departure of the very people who have long-term knowledge, experience and connections to China is a loss difficult to quantify, except to say that it’s significant and nearly impossible to replicate.

China may not need foreigners like the country did at the outset of reform and opening up, when the broader, fully modernised world was new. But one hopes that China still wants foreigners to make the country a more open, prosperous and worldly nation among its peers.

Brian P. Klein is founder of RidgePoint | Global, a strategic advisory firm. He is a former US diplomat