Shanghai: In Need of Diversity

Shanghai is sluggishly getting back on its feet in what all hope is a permanently post-pandemic world. The question is, will the Shanghai economy rebound fully to its pre-eminent spot as the powerhouse engine of the world’s second largest economy? There are conflicting indicators, both statistically and as seen on the ground in the city.

Amid the contrary signals, one factor deserves attention: Shanghai has a problem accepting diversity, and that is keeping the city from realizing its full potential.

Multiple news outlets reported last month that consumption is lagging behind expectations. The annual “618” (June 18) online shopping festival did not go well. E-commerce platforms found themselves unable to convince shoppers to part with their money in many previously high-demand sectors, such as fashion.

In addition, there were reports throughout China that urban youth unemployment is now at a record high, at above 20 percent. That statistic includes Shanghai. This is a factor that worries Beijing greatly; unemployed people have both grievances and time on their hands.

Economists are not in agreement on growth prospects in 2023. Some say that China as a whole may not see any growth in the second half of 2023; others confidently predict that Shanghai, at least, will see 6 percent growth. The more optimistic analysts point to the Shanghai Stock Market, which has been showing robust signs of health.

However, warning signs are also clear on the ground in Shanghai. Changshou Road is one of the main thoroughfares of Putuo district in northwest Shanghai. This main artery boasts internationally-branded hotels, convenient subway stations, and cozy little nooks of independent shops and restaurants.

Also along this prominent street can be found dozens of shuttered shops. Within just one short block in the prime retail area of Changshou Road, eight shops have gone out of business. With million-dollar apartments right next door, the shop closings are not due to a case of urban blight. They are instead, victims of COVID blight.

Some reports have it that Shanghai will have a surge of foreign investment as COVID-19 fears take a back seat to renewed business optimism. But any foreigners who come to live in Shanghai on behalf of the management of those investments will find themselves part of a tiny – and not entirely welcome – foreign expatriate population.

How many foreigners live in this city of 25 million plus? According to pre-pandemic Chinese statistics, 163,363. And that number has almost certainly dropped, given anecdotal reports of foreigners fleeing China during the zero COVID days.

This infinitesimally small percentage of foreign residents in Shanghai, just 0.6 percent of Shanghai’s fixed population, reflects a deep and intentional reality: Shanghai’s leaders – and many of its people – don't want millions of foreigners living in the city.

A jaded viewer might say that Shanghai wants just enough foreigners to keep the investments coming, and to ensure that Chinese children who are in English-learning classrooms continue to be taught by native English speakers. And that, truly, is about it.  

Diversity is not a Chinese priority. Neither workplaces nor social venues seek to include foreigners in their mix. Some of the larger Chinese companies have tried diversity initiatives and seen them fail. Obviously, when foreign companies bring their investments or representative offices to China, they have the right to staff as they choose, but workplaces of foreign subsidiaries staff predominantly with local Chinese, as is logical. If the investing companies are from G-20 countries, they find costs significantly lower than at home, making local staffing even more attractive.

What this has done in Shanghai is shelter the local population from the effects – both positive and negative – of encountering the foreign cultures and mindsets of their investors. And that lack of experience and exposure is what keeps Shanghai as a whole provincial.

Shanghai is insulated from the impacts of cultural contact and even cultural clashes with its foreign customers, suppliers, partners, and even competitors. Far from being the most international, forward-looking, and open city in China, as marketing messages would have one believe, it is instead fair to say that Shanghai is one of the most internationally-resistant cities in China.

What’s the economic effect of this? Perhaps one could look to the financial centers of London and New York – the cities that Shanghai tries to emulate – as examples. The talent that drives the financial sector in both cities represents ethnicities from everywhere on the planet. It is surely no coincidence that New York and London both boast resident populations that are over one-third foreign born. For Shanghai, that is unthinkable.

Although diversity among peoples seems to work best when it organically occurs, rather than when it is engineered and stage managed, incentives to diversify the population give people choices of where to go. Shanghai has so much more it could do to attract and keep a diverse foreign population of much greater substance that it has now.

Yet, Shanghai prefers to keep to itself. It does not take advantage of the opportunities or benefits of its role as a potential channel for so much more than containers. The only reason that Shanghai gets the recognition it does is because there is no other contender in China, except for Guangzhou, to challenge it. If Shanghai had to compete as an “international city” with any of its prime contenders outside of China, it would not win on most scores.

As a result, Shanghai is actually not a gateway for much other than the physical transport of goods out of, and sometimes into, China. Shanghai is primarily a loading dock.

In fact, Shanghai is so insular that it is famous for being inhospitable not only to foreigners, but to people from other regions of China.

It is well-known that the people who work at the hardest, lowest-paying jobs in Shanghai are actually not from the city. Immigrants from poorer areas of the country – and there are still countless such areas – continue to flood into Shanghai, finding work as laborers, delivery drivers, hotel housekeepers, and restaurant workers. Indeed, it was the migrant delivery drivers who kept the rest of Shanghai fed and alive during the now infamous COVID-19 lockdown in spring 2022.

Yet Shanghai’s native-born residents aren’t grateful for the influx of workers that enable the comforts of their service-driven lives. Instead, the government has sought to make it as difficult as possible for migrant workers to find a home in Shanghai. Six years ago the municipal government decided to stabilize the population of the city at 25 million, at least until 2035, citing restrictions on resources and the environment.

Some work will have to go into meeting that challenge, however. It is 2023, and already the population has reportedly swelled to nearly 28 million. And of that 28 million, 9 million are domestic migrants from other parts of China.

Clearly, those who live in the interior of China are willing to leave their families for months and years on end to go to Shanghai to work in hard jobs for low pay – which is still more than they would earn at home.

However, those who can command top jobs don’t need to stay in Shanghai because they have opportunities elsewhere. As a result, Shanghai is filling up its low-cost labor pool faster than it is adding to its top-tier talent, and there is no sign of that stopping any time soon.

A cultural aversion to diversity prevents Shanghai from attracting and keeping the international talent that it needs to become a truly global city. One can’t be a truly international city when over 99 percent of residents are locals. And that is a recipe for the eternal stagnation of Shanghai's economy.

Being in a position to compare Shanghai 30 years ago with Shanghai today, it is discouraging to report that the cultural and structural problems that were evident in Shanghai in 1993 are still present in Shanghai in 2023.

Shanghai is trying to be international while still being inward, insular, and exclusive. One or the other of those trends will prevail, and so far, unfortunately, it is the latter.