VZCZCXRO6370
RR RUEHCN RUEHGH
DE RUEHGH #0275/01 1740612
ZNR UUUUU ZZH
R 230612Z JUN 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 8068
INFO RUEHBJ/AMEMBASSY BEIJING 2899
RUEHCN/AMCONSUL CHENGDU 2078
RUEHGZ/AMCONSUL GUANGZHOU 0535
RUEHHK/AMCONSUL HONG KONG 2246
RUEHSH/AMCONSUL SHENYANG 2069
RUEHIN/AIT TAIPEI 1864
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8715

UNCLAS SECTION 01 OF 03 SHANGHAI 000275 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
USDOC FOR ITA/MAC/OCEA - SZYMANSKI 
TREASURY FOR OASIA - HAARSAGER, WINSHIP 
 
E.O. 12958: N/A 
TAGS: ECON SCUL CASC CH
SUBJECT: FINANCIAL CRISIS HITS SHANGHAI EXPATS HARD 
 
REF: SHANGHAI 259 
 
¶1. (SBU) Summary:  The effects of the global financial crisis 
are leading many in Shanghai's expatriate community to return 
home ahead of schedule just as Shanghai ramps up for the 2010 
World Expo.  Shanghai has approximately 150,000 expats who work 
for many of its 40,000 foreign-invested projects.  Multinational 
companies who are seeking to cut costs are sending expats home 
or asking them to accept reduced benefits packages.  End summary. 
 
¶2. (SBU) Often called the "New York of China," Shanghai prides 
itself on being an international center for trade, finance, 
logistics and shipping, and has ambitious plans to expand those 
international roles.  According to Shanghai Municipal officials, 
there are more than 150,000 expatriates living and working in 
Shanghai, making it the most "foreign" of cities in China.  Of 
these, approximately 22,000 are U.S. citizens.  Shanghai has 
over 5,500 U.S.-invested projects, including such large 
companies as General Motors (in a highly profitable joint 
venture), Intel, GE, Kodak, and UPS.  U.S.-invested companies in 
Shanghai account for approximately one-eighth of the total of 
40,000 foreign-invested projects in Shanghai.  There are signs 
that the global financial crisis, and the concomitant slowdown 
in China's economy and trade, has impacted the expat community 
here.  Anecdotal evidence and recent, non-scientific surveys of 
the expatriate community in Shanghai indicate that Shanghai's 
foreign population is decreasing and changing just as Shanghai 
ramps up for the 2010 World Expo.  That six-month event (May 1 
-- October 31, 2010) is expected to bring as many as sixty 
million domestic visitors and ten million foreign visitors to 
Shanghai. 
 
Shanghai's Economy from Go-Go to Slow-Slow 
------------------------------------------ 
 
¶3. (SBU) According to official statistics, in 1Q 2009, 
Shanghai's GDP grew only 3.1 percent, down from the 7.2 percent 
growth in the 4th quarter of 2008.  Shanghai's economic slowdown 
is largely attributed to the city's traditional dependence on 
exports and comes after 16 years of year-on-year double-digit 
growth that ended in 2007; 2008 GDP growth still exceeded 9 
percent.  According to a Human Capital Group's recent survey of 
more than 300 human resource directors and general managers at 
foreign-invested firms in Shanghai, 78 percent reported that 
their company and workforce were being significantly affected by 
the global financial crisis. 
 
On the Down Side of the Sine Curve 
---------------------------------- 
 
¶4. (SBU) An American lawyer who has lived and worked in Shanghai 
for 24 years describes the recent outflow of expatriates as the 
worst she has ever seen.  It is not the first expat exodus she 
has seen, however.  She described the size of Shanghai's 
expatriate community as being analogous to a sine curve with ups 
and downs over time. 
 
¶5. (SBU) Multinational companies send expatriates to Shanghai to 
provide management and technical expertise not available here in 
China, she observed.  These expatriates come on expensive 
"expat" packages that often include such perquisites as 
financial bonuses, rent in appropriate housing (usually at least 
USD 6,000 per month in gated "foreigner" compounds), a car and 
driver (about USD 13,000 per year), tuition for kids (USD 22,000 
per year), annual vacation tickets and trips back home, along 
with the usual relocation costs.  After a few years, management 
located outside of China starts to question the value of these 
expensive expatriates and downsize their complement.  Then, over 
time the companies realize that the services and skills of the 
locally-engaged staff do not live up to expectation and send 
expats back to "fix up the problems." 
 
¶6. (SBU) As another contact with 15 years in Shanghai's 
manufacturing sector said, "The problem is developing a mediocre 
local supplier to an acceptable global supplier.  Amongst local 
hires, there is a basic lack of understanding of the work ethics 
and business environment outside of China.  As long as Chinese 
don't get this, companies will need expats to do the work. 
Those companies that are sending people home now will be 
bringing them back in a couple of years." 
 
 
SHANGHAI 00000275  002 OF 003 
 
 
Expats, Half-pats, and Returning Chinese 
---------------------------------------- 
 
¶7. (SBU) In addition to the expatriates working for large 
multinational companies and recruited from abroad (and who 
generally are recipients of the generous expat package listed 
above), Shanghai companies have also attracted a large 
population of expatriate workers who are recruited locally. 
These are known here in Shanghai as "half-pats" since their 
salary and benefits package are often very adequate, but much 
lower than their externally-recruited colleagues.  These expats 
often live more on the local economy in apartments designed for 
Shanghai's upper middle class.  These "half-pats" are often 
younger and less experienced than those on expat packages and as 
a result may be single or newly married and not yet have 
children they want to enroll in one of Shanghai's large 
assortment of very expensive international schools.  "Half-pats" 
often include returning Chinese students (often with advanced 
degrees) who come back to China and are willing to work for 
multinationals on local wages. 
 
¶8. (SBU) Several expats who are leaving Shanghai this summer 
told Econoff that their companies, attempting to cut costs, 
offered them the option to stay in Shanghai on a "local 
package."  One such individual, employed by Intel, said she was 
offered a reduced-benefit package that included her housing 
allowance and children's schooling, but did not include a driver 
or relocation costs back to the United States.  She opted to 
take her family back to the United States. 
 
¶9. (SBU) Several Chinese-American or Chinese who had studied 
abroad and returned to Shanghai told Econoff that the departure 
of many on expat packages was a great opportunity for them to 
get jobs here in Shanghai.  Working for multinationals -- even 
on a local package -- comes with the cachet and higher salary 
they feel they deserve after studying overseas. 
 
"The Koreans Are Gone" 
--------------------- 
 
¶10. (SBU) The Shanghainese Korean community was especially 
hard-hit by the onset of the global financial crisis in late 
2008 as the Korean Won fell steeply against the U.S. Dollar. 
Press reports indicated in March 2009 that more than 10,000 
Koreans had left Shanghai in the preceding several months.  A 
teacher at an international school that had many Korean students 
told Econoff that "the Koreans are all gone."  An administrator 
at another international school said that 38 of 41 Korean 
families withdrew their children from school and abruptly left 
Shanghai over the 2008-2009 winter school break. 
 
Impact on International Schools 
------------------------------- 
 
¶11. (SBU) Econoff spoke with administrators or admissions 
officers at twelve of Shanghai's international schools as a way 
to unscientifically measure changes in the expat community.  All 
schools reported that they were seeing a higher-than-normal 
departure rate this summer, as measured by those students that 
had paid re-enrollment fees.  Most first-tier schools reported 
that they expected their Fall 2009 enrollment to either decrease 
by five percent or remain flat.  Second-tier schools reported 
that their enrollments were falling, though most were not 
willing to reveal by how much.  Several first-tier schools said 
that they were making up for departures through transfers of 
students from the second-tier schools.  Most schools reported 
that they had been experiencing double-digit year-on-year growth 
over the past five years, with one school having been growing at 
15 percent per year.  Maintaining a flat enrollment therefore 
actually was a decline, said one admissions officer. 
 
¶12. (SBU) Another school principal with more than 10 years in 
Shanghai observed that that "during the Asian financial crisis 
in 1997 it took 15-18 months before schools in Shanghai started 
noting downward trends in enrollment as companies' losses 
mounted."  Given the expense in moving expats, companies appear 
likely to be willing to weather short-run losses and wait to see 
if economy picks back up, she added.  The rapid departure of the 
Korean students from her school, she said, came as a big 
surprise, however she expects that the expat community will 
 
SHANGHAI 00000275  003 OF 003 
 
 
stabilize over the summer.  Despite this, her school had raised 
re-enrollment fees to USD 5,000 in order to encourage only those 
who were truly coming back to Shanghai after the summer break to 
sign up for class in Fall 2009 so that the school could plan 
appropriately. 
 
Some Staying and Betting on the Future 
-------------------------------------- 
 
¶13. (SBU) Not all ex-pats leave China, however, when they lose 
their jobs or benefits packages with multinational firms.  Some 
are betting on China's future and are choosing to remain in 
Shanghai at their own expense, hopeful of being well-positioned 
when the uptick comes.  After being released by her company, one 
ex-pat manager moved her family into local housing and enrolled 
in full-time Chinese language courses while her husband found 
work as a teacher to maintain some income.  The non-profit team 
that is organizing the USA Pavilion for the World Expo has 
actually benefitted from the slowdown because it has enabled two 
experienced American executives to devote themselves full-time 
to the effort.  One of them had been sent to China with his 
family by a major American advertising company in early 2009, 
but then was told that his China position was being abolished. 
He had the option to return to the United States to take a 
domestic position, but did not want to move his school-age 
children twice in the same year. 
 
Comment 
------- 
 
¶14. (SBU) The Shanghai Municipal Government appears sensitized 
to the departure of many of its expatriate residents as it ramps 
up for the 2010 World Expo and it recently convoked Shanghai 
Consular Corps representatives for an "unprecedented" meeting on 
improving Shanghai's service environment for foreigners 
(reftel).  Word on the street, falling rental prices in 
expatriate-only gated communities and anecdotal evidence 
suggests that the global financial crisis, China's economic 
slowdown, and multinational companies' needs to cut cost to 
maintain competitiveness are impacting Shanghai's expatriate 
community.  For expats remaining in Shanghai, however, the news 
is not all bad -- rents are falling significantly (for example, 
the Consulate has renegotiated its housing leases for an overall 
savings up to 15 percent) and, as one long term resident 
observed, it no longer takes him as long to get a table at his 
favorite watering hole. 
CAMP