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The coming brain drain: Is Shanghai becoming too expensive?

For the third time this year a staff member at Spil Games Asia resigned because he/she could not afford the cost of living in Shanghai anymore. Our salary level is not low compared to many other companies, but it turns out that the cost of living in Shanghai is so high that for some people it just does not make sense to stay anymore.

Housing prices are the main culprit. If you bought a house a few years ago things are fine, prices have doubled or tripled over the past years so you are safe. But if you rent in order to save some money to pay the down payment for a future mortgage you are out of luck. Housing prices in the city are so high now that people with normal salaries can hardly afford them anymore.

So what we are seeing now is that people are moving to other cities. The first person that resigned this year for financial reasons received an offer from a good Internet company in a smaller city on the East coast. With a similar salary he could get himself decent housing there, but in Shanghai he would never be able to afford that. The second one decided to become a civil servant in his hometown. The pay would be a lot less, but in the end he would have more spending power (and probably an easier life). Yesterday a third person resigned to move back to her hometown with her husband. Again housing prices in Shanghai were the main reason.

People who are originally from Shanghai normally won’t leave because they have their roots here, but people who come from cities in inland China are now starting to go back. It always happens after they have stayed in Shanghai for some time and realize they basically have no future here. If you can’t even afford a house how can you start a family here? It’s the same trend as the one for migrant workers 2 years ago, they also left the coastal regions to go back home. There are more opportunities in inland China now and you only need a fraction of your Shanghai income to have the same quality of life.

This means a brain drain for cities like Shanghai, but it’s probably good for China as a whole. The distribution of knowledge will be more even and this will help the development of the non-coastal areas. It may cause some problems for companies because it puts an upward pressure on salaries for experienced staff. You are still able to find (or keep) people as long as you are willing to pay, but for top people salaries now already come close to those in Europe.

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  1. hypothetical: if this problem worsens, how would Spil manage?

    Would Spil move to a 2nd tier city like Chengdu/Hangzhou or a small Exurb of Shanghai? Would you even consider 3rd-4th tier cities?

  2. You simply have to pay more for your most senior people and rely more on young university graduates that you will need to train more intensively. In our game studio we have a training program for new programmers that works well, and that binds people to the company for several years. We would never move to a 2nd or lower tier city, that means you would lose all your staff: likely nobody would move with you so you would need to start all over. Not even taking into account the fact that the government probably does not allow you to move.

    But it may be a factor for new companies setting up a business in China, they may consider to do that somewhere else. Or companies that grow bigger could decide to set up a branch somewhere else in China.

  3. Interesting, in NYC, even with the bust in housing prices, prices are still sky high + rising. Some people come here for a few years and get tired of the “grind” others stay and somehow make it work. WOndering if Shanghai is just attracting more foreigners which hike the prices or if it’s more mainlanders?

  4. It’s not because of the foreigners, they make up less than 1% of the total population of Shanghai. It really the local demand that’s larger than the supply: not because there are not enough apartments, but because people buy one and don’t use it to sell it later for a higher price (an apartment that’s new fetches a much higher price than a second hand one).

  5. Brain drain is always a concern in Silicon Valley. Like NYC housing cost here is outrageous. A family home in a decent neighborhood with good public schools easily costs over $1M, no salary raise could compensate that. Many had left, but many are staying. The cultural diversity, innovative technical environment and good weather are some of the factors. Afterall, money can’t buy everything.

  6. the strange part is that still around 30% (estimate) of shanghai residential property is empty. Furthermore i believe that on the long term the the idea of the “new apartment” changes. Why should you live in a “new apartment” which is badly managed compared to “second hand” apartment which is decently managed? Old houses in Shanghai have become more attractive too. They just need to be renovated.

  7. Same here in Shenzhen, we are lucky we bought a cheap (small) apartment a while ago. For all those new students arriving these years I fear the worst. It’s impossible that they will be able to buy a house (most houses in center cost over 20K RMB/m2)