Shanghai fears US-China trade war

Shanghai, China’s commercial capital, is in a holding pattern. The city is China’s foreign investment hub, garnering more than $5.14bn in greenfield FDI in 2017 or over half of all flows into China that year according to fDi Markets. However, despite ample opportunities in China’s fast-growing economy, greenfield FDI has been on a gentle decline since the turn of the millenium.

Shanghai’s investment patterns mimic this. Despite robust internal consumption patterns and a fast-growing city, the head of Shanghai’s investment promotion authority fears a US-China trade war will exacerbate this.

“There is a trend towards unilateralism, unpredictability in the global investment environment - this poses a lot of risks,” says Sun Xinhua, president of Invest Shanghai.

As with everywhere in China, the shadow of the imminent US-China trade war looms large for firms based in Shanghai, though the speed of impact varies from business to business. “Some of the firms we work with see immediate impact from Trump policies in particular, some others will say long-term they can be affected but short-term they’re OK,” says Mr Sun.

Indeed, many of the worst affected may be the victims of the unintended consequences of protectionist policies. “Quite a number of those affected are US and other Western firms due to the disruption of the global value chain,” Mr Sun explains.

Escalating costs, particularly of real estate, are also a concern when looking to attract investors to Shanghai. “The cost is going higher and higher in Shanghai,” Mr Sun says.

Some argue that Shanghai’s escalating real estate costs are unsustainable, and may restrict investment over the long term. In 2017 a 93 sq m apartment in Shanghai went for around $725,000, or 50 times the average monthly salary. By comparison, in pricey New York City it is 32 times average salary.

Financial services, chemicals and real estate were the top sectors for FDI investment into Shanghai in 2017 by capital flows.