Smog Darkens Shanghai’s Prospects for Becoming a Global Financial Center; The Recent Stretch of Filthy-Air Days Shocks Residents, Inspires Thoughts of Flight

Smog Darkens Shanghai’s Prospects for Becoming a Global Financial Center

The Recent Stretch of Filthy-Air Days Shocks Residents, Inspires Thoughts of Flight

WEI GU

Dec. 12, 2013 1:35 p.m. ET

In the debate over which matters more in China, money or quality of life, the quality-of-life side may have found the ultimate argument: If you can’t breathe, nothing else really matters. China’s pollution problem is spreading and growing worse, a fact on stark display last week in Shanghai, the country’s financial center. A stretch of filthy-air days in that coastal city so thoroughly shocked residents—who had largely escaped the smog that has long plagued the likes of Beijing and Harbin—that it inspired fresh talk about getting away from China.

The air quality in Chinese’s top-tier cities like Shanghai are getting worse. Richard Brubaker of Collective Responsibility tells the WSJ’s Wei Gu how this is pushing residents to consider moving to another country.

Over the past century, migration has almost always been driven by a desire to get ahead. But today more affluent Chinese are talking about accepting a climb-down on the career ladder and a less-exciting lifestyle in exchange for cleaner air, safer food and a different education system.

Lawrence Shu, a Shanghai-based partner at Hylands Law Firm, said he and his friends are thinking more seriously about moving abroad. “The smog had a big impact, because it feels really bad if you can’t breathe freely,” he said.

The environment used to take a back seat among the Chinese. But as they get richer, they are traveling abroad more, making the pollution back home more obvious. The Internet also contributes: Blue-sky pictures posted on social networks by Chinese travelers abroad constantly remind folks of what is lacking at home, and Chinese now use various apps to track air-quality data.

“The smog will clear up but is set to come back—in fact, it is more likely to get worse,” said Mr. Shu, an Oxford-educated lawyer. “It will be a constant reminder for those who are still thinking whether they should move abroad.”

Some Chinese who recently returned home are having second thoughts. Eric Huang, originally from the mainland, moved to Shanghai from Hong Kong in 2012, drawn by the opportunity to invest in new growth companies as head of fund management for Hong Kong developer Shui On Land Ltd. The former China portfolio manager for the real-estate fund at Deutsche Bank also thought his daughters would benefit from being exposed to Mandarin and Chinese culture.

But the smog has him regretting the decision. The family has been sick for three weeks, starting with his older girl and now back to her for a second round. He has to make time for visits to hospitals, which are overcrowded with smog-related cases. Many meetings were canceled, because traffic was disrupted by the smog.

“I thought Shanghai was the best place in China to live in, but now I just want to escape,” Mr. Huang said. “I feel bad subjecting my daughters to the dirty air.”

China isn’t suffering from a capital flight or a brain drain yet, because there are good investment and career opportunities. In fact, China still shows net inflows of money. The yuan hit a record high this week, as recent strong economic data have lifted sentiment for the Chinese currency.

And foreigners are still drawn to China. An HSBC Holdings HSBA.LN -0.09% PLC survey of expatriates in 37 countries, released last month, put China at the top overall. Expats praised the work-life balance, quality of education and safety, and said it is an easy place to make friends. The survey didn’t ask specifically about pollution levels.

But capital and talent are more likely to flee if people have one foot out the door already. It isn’t unusual for wealthy Chinese to stay in the country but send their wives and children abroad. That has now become more common among expatriates, too, according to relocation experts.

“I love the business environment in China. It is very good if you want to make money,” said Shaun Rein, founder of China Market Research, who is thinking about opening an office in Hong Kong or Singapore. “But the last two weeks have scared the hell out of people.”

If Shanghai’s smog discourages smart financial professionals from wanting to live there, that will hinder China’s effort to create a global financial center. If businesses such as financial companies and luxury-goods makers perceive that China’s elites are spending more time outside their home country, they will be less willing to invest in China.

Private bankers based in Hong Kong say they feel less need to travel to China, because many of their clients are moving abroad. As many as 60% of high-net-worth Chinese are considering or have completed immigration, according to the 2013 China private-wealth report by Bain & Co. and China Merchants Bank.

Most rich Chinese haven’t packed their bags and left yet, but they are keeping their options open. “Relocation is a big decision,” said Anne Wang, who works in the financial industry in Shanghai. But just in case, she recently received a U.S. investment visa that would allow her to live there.

Ms. Wang’s family now spends most weekends at a vacation home near Dianshan Lake, about an hour away from central Shanghai, where the air is fresher. She also looked to buy a vacation property on Hainan Island. “I want to monitor the situation for a bit longer,” she said, “to see whether the trend is getting better or worse.”