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

Stringent pandemic policies and tax law changes are driving expatriates away, eroding business and diplomatic pillars
With so many foreigners leaving, examples of good US-China people-to-people relations will become increasingly hard to find

Ker Gibbs

Published: 9:15am, 19 Nov 2021

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At a time when China’s role on the world stage is growing, it is also becoming more isolated and less international. The number of foreigners working in China’s two most important cities has declined sharply in the past decade.

In Shanghai, China’s international and commercial centre, the number of expatriates fell more than 20 per cent in the past decade from more than 208,000 to around 163,000.

The numbers are even more extreme in Beijing. The number of foreigners has fallen by more than 40 per cent since 2010, to about 63,000. By comparison, Luxembourg has around 630,000 total residents, almost half of whom are foreign workers.

Several reasons lie behind the drop. As China’s labour force has developed and improved, more companies are replacing foreign managers with locals. This is to be expected.

But the other causes of the decline in expatriates are more pernicious. The exodus is accelerating as stringent pandemic policies prompt foreigners to rethink their commitment to working in China. These departures are eroding important business and diplomatic pillars. That is bad for China, the United States and the rest of the world.

01:51

China steps up zero-tolerance approach to Covid-19 as Delta fears grow ahead of Beijing Olympics

For China, which has perhaps benefited more than almost any other country from the synergy of East and West, a more closed country would not be the best possible version of itself. China would lose the benefits it has enjoyed in the past four decades as the country has opened up.

While China’s rapid economic development can be attributed to the hard work and entrepreneurial spirit of the Chinese people, it is also true that opening to the outside world played an important role. By allowing in foreign capital, ideas and management expertise, China accelerated its transition into one of the world’s most important and advanced economies.

The pandemic is a big part of the problem. China’s virus containment efforts have been effective from a public health standpoint, succeeding through a mixture of self-discipline, community cooperation and wide use of rapid testing and contact-tracing protocols.

But today, as the rest of the world is reopening, China’s zero-tolerance approach to Covid-19 is looking costly.

06:05

As more countries ditch ‘zero-Covid’ policy, why is China opting to ‘wait and see’?

According to a recent American Chamber of Commerce Shanghai survey, around 70 per cent of our members report having difficulty attracting and retaining foreign talent in China. More than half the members report pandemic-related travel restrictions as playing a significant factor.

Getting business executives and their families in and out of China has been frustratingly difficult since the pandemic began. Recent anecdotal evidence indicates there has been some relaxation of this policy, but there is still a burdensome application process and lengthy quarantine. All this results in far fewer foreigners willing to work in China.

The number of foreigners is expected to drop even further when changes to China’s tax laws are implemented on January 1. While foreigners previously enjoyed a tax exemption for allowances such as school fees, this will now end.

It is practically impossible for foreigners to send their children to public schools that require a high level of Mandarin and teach a different curriculum from schools in the West. This leaves expensive international schools as the only real option. The impact on both foreign companies and their international employees will be profound.

China’s expats say living there good for careers, but quality of life is low

According to another AmCham survey, 36.1 per cent of companies with annual revenues of more than US$100 million said they would consider moving all or part of their facilities out of China if the new tax policy was implemented. What could prove a boon for countries such as Singapore will be a loss for China.

Fixing these issues need not be difficult. Clarity on visas and providing more flights would help ease the burden for individuals and companies. Shorter quarantine periods for the fully vaccinated would help, too.

Rethinking the tax change or tapering it over several years would give companies time to adjust. However, these changes alone will not address some of the deeper factors eroding confidence in China as an international business centre.

China has restricted the entry of foreign journalists over the past two years. The announcement that it will allow some foreign correspondents to return is a positive step but journalists from many publications are still waiting for visas.

Without these important voices, foreign businesses lack the information necessary to make informed investment choices or business decisions. Seasoned China reporters now based in Singapore, Seoul and elsewhere can only report on China for a while before their on-the-ground knowledge of the country goes stale.

Many of the foreign business executives now working in China – who are also some of the strongest advocates for the US-China relationship – were Chinese-language students in the 1980s and 1990s. Today, student exchanges are down.

While the US has issued more than 85,000 visas to Chinese students and scholars in the past few months, Beijing has granted visas to only a handful of foreign students to attend schools in China. Extreme restrictions on students will be costly in the long run.

Almost 50 years ago, the United States and China signed the Joint Communique, setting the two countries on the path to normalisation of diplomatic relations in 1979. Normalising relations brought immeasurable benefits to China, the US and the entire world, advancing the cause of peace.

Today, people-to-people exchanges between the US and China are on the wane, reversing momentum towards better mutual understanding.

Even as government-to-government relations continue to decline, it is often said that the people of our two nations have no quarrel with each other. With so many foreigners leaving China, examples of good people-to-people relations will become harder to find.

Ker Gibbs is president of the American Chamber of Commerce in Shanghai