U.S. companies in China say vague rules and tensions with Washington are hurting business, according to a survey

  • Post by: Admin
  • Sep 19 2023

A survey by the American Chamber of Commerce shows that American companies operating in China view tensions with Washington over technology, trade and other issues as a major obstacle to competition for their businesses there

Just over one in five companies surveyed said they would reduce investment in China this year, with the main reason being uncertainty over U.S.-China trade relations, followed by expectations of slower growth in China, it said.

Overall, the survey found that sentiment has worsened compared to last year, when businesses struggled with disruptions due to "zero COVID" policies that resulted in parts of entire cities, transport networks and travel being shut down, sometimes for weeks became.

According to the survey, such disruptions were a key "push factor" cited by companies in expanding their operations outside of China.

While 52% of respondents said they were optimistic about their five-year business prospects in China, that was the lowest since the American Chamber of Commerce began its annual survey in Shanghai in 1999.

Nearly nine in 10 companies said rising costs were a major challenge.

Companies cited geopolitical tensions as the biggest concern, followed by an economic downturn that dashed hopes of a strong post-pandemic boom.

Heightened competition has also been exacerbated by policies that favor local companies over foreign companies and courts that tend to favor Chinese companies in rulings on protecting intellectual property such as patents and trademarks.

Companies face a growing threat from "nimble, innovative local companies and state-owned enterprises, which have enjoyed greater support in recent years and whose consolidation has made them increasingly competitive with large multinationals," the survey said.

Companies limiting their exposure to the Chinese market include companies that sell technology hardware, software and services - an area hit hard by trade sanctions imposed in the name of national security, particularly by Washington became.

Others include education and training - industries that have suffered from crackdowns on private education companies as well as banks and other financial industries.

Southeast Asia is the first choice for 40% of companies shifting investments outside China, followed by the US and Mexico, the survey said.

In the 2022 survey, 40% of manufacturers surveyed said China was among their top three investment destinations, while this figure fell to 26% this year.

American companies are also calling on Chinese authorities to clarify various regulations, as gray areas leave companies unclear about what is allowed and what may have been banned as rules have changed.

“Companies are much more hesitant,” said Sean Stein, chairman of AmCham Shanghai. He noted that the problem is acute for financial and pharmaceutical companies.

"What businesses need most is clarity and predictability, but across many industries, companies are reporting that China's legal and regulatory environment is becoming less transparent and more uncertain," Stein said in an online briefing ahead of the report's release.

The survey results were consistent with those of other foreign business groups. Foreign companies are in embarrassment after unexplained raids on two consulting firms and a due diligence firm. The expansion of an anti-espionage law and the push for technological independence are also seen as risks.

According to official data, foreign investment in China fell 2.7% year-on-year in the first half of 2023.

A survey by the British Chambers of Commerce in China found that 70% of foreign companies want “more clarity” before making new investments. The European Union Chamber of Commerce in China said its members are shifting investments to Southeast Asia and other destinations.

Despite the relatively bleak outlook expressed by the survey, some things have improved, members of the American Chamber of Commerce said.

China has preferential tax breaks for expatriates, such as: B. tax depreciation for housing and education expenses, extended until the end of 2027.

A recent general improvement in relations between China and the US. Relationships have been formed since the survey was completed, they said.