Survey Shows Declining Optimism and Investment
A survey conducted by the American Chamber of Commerce in Shanghai (AmCham Shanghai) revealed that American companies operating in China view tensions with Washington over technology, trade and other issues as a major hindrance for their businesses there. The survey, which was released on Tuesday, showed a continued downgrading of China’s importance as an overseas destination for investment, even though two-thirds of the 325 companies responding said they had no immediate plans to change their China strategy.
Just over one in five of the companies surveyed said they were decreasing their investment in China this year, with the top reason being uncertainty about the U.S.-China trade relationship, followed by expectations of slower growth in China. Overall, the survey showed sentiment worsened from last year, when companies were embroiled in disruptions from “zero-COVID” policies that caused parts of entire cities, transport networks and travel to be shut down, sometimes for weeks at a time. Such disruptions were a major “push factor” that companies cited in expanding their operations outside China, the survey showed.
While 52% of those surveyed said they were optimistic about their five-year business outlook in China, that was the lowest figure since AmCham Shanghai began the annual survey in 1999. Nearly nine in 10 companies said rising costs were a big challenge.
Geopolitical Tensions and Regulatory Changes Add to Uncertainty
Companies named geopolitical tensions as a major concern, followed by an economic slowdown that has foiled hopes for a strong, post-pandemic boom. Intensifying competition has also been worsened by policies that favor local companies over foreign ones and courts that tend to favor Chinese companies in decisions on protection of intellectual property such as patents and trademarks. Companies face a growing threat from “nimble, innovative local businesses and state-owned enterprises, which have enjoyed stronger support in recent years and whose consolidation has made them increasingly competitive with large multinational corporations,” the survey said.
Some sectors have been hit harder than others by trade sanctions imposed in the name of national security, mostly by Washington. These include technology hardware, software and services — an area where U.S. firms have traditionally enjoyed a strong presence and reputation in China. Other industries that have suffered in a crackdown on private education companies include education and training — sectors that have been seen as potential growth areas for U.S. businesses. Banking and other financial industries have also faced challenges in navigating China’s complex regulatory environment.
Some Opportunities Remain Despite Difficulties
Despite the difficulties, some U.S. businesses still see opportunities in China’s vast and dynamic market. According to the survey, 40% of respondents reported revenue growth in 2022, up from 28% in 2021. The most optimistic sectors were health care, consumer goods and retail, which benefited from China’s relatively quick recovery from the pandemic and its growing middle class.
Some companies also expressed hope that the Biden administration would adopt a more pragmatic and consistent approach to dealing with China than the previous administration, which imposed tariffs and sanctions on Chinese goods and entities without much consultation or coordination with allies. The survey found that 60% of respondents favored rejoining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade pact that includes 11 countries in the Asia-Pacific region but not China or the U.S. The survey also suggested that U.S. businesses wanted more engagement and dialogue between the two governments on issues such as market access, intellectual property rights, cybersecurity and human rights.
