China remains a top long-term priority for most US companies, according to a new survey released today by the American Chamber of Commerce in China (“AmCham China”), despite slowing growth, wider US-China tensions, longstanding business challenges in the country, and the COVID-19 outbreak. Subsequent to the annual survey, the COVID-19 outbreak has recently been reflected in an AmCham China Flash Survey, and near-term additional Flash Surveys on the subject will continue to track member sentiment on this important challenge to both human health and commerce.
The Chamber’s annual Business Climate Survey (BCS) Report said that many American companies in China continue to be profitable, although China’s slowing GDP is reflected by the fact that 21% of surveyed members saw a drop in revenue in 2019, compared with only 7% in 2017. Additionally, the proportion of members describing their financial performance as “profitable” has dropped from 73% in 2017 to 61% in 2019 – the lowest percentage to report profitability in almost two decades.
This is the 22nd consecutive year that AmCham China has surveyed its members on China’s business climate, with the results providing invaluable insight into the longer-term trajectory of China’s corporate environment. The uncertain and developing nature of the COVID-19 epidemic is causing member companies to reassess their outlook and priorities for the year, as detailed in the Chamber’s flash survey from last month. The BCS results contain input from roughly half the Chamber’s members and further elaborate on the progress of regulatory developments, such as intellectual property and cybersecurity, while continuing to track how nearly two years of US-China trade tensions have impacted member companies.
Although improvements have been made to wrestle with longstanding operational and regulatory challenges, a growing number of companies expressed a pessimistic outlook, as bilateral US-China tensions remained a major source of uncertainty, despite the enactment of China’s Foreign Investment Law and before the signing of the Phase One trade deal earlier this year. Furthermore, the full impact of the COVID-19 outbreak remains unknown and is not reflected in these results.
“The fight against COVID-19, ongoing bilateral negotiations, and a slowing Chinese economy make for challenging business conditions,” said AmCham China Chairman Greg Gilligan. “Foreign businesses will have to be versatile and resilient, and keep long-term plans in mind. But the market panic of COVID-19 will eventually subside, and 2020 will be a critical year for businesses and policy makers with significant impact on the trajectory of US-China relations. It is our hope that our survey’s results will spark open and candid dialogue between both countries as we continue to advocate for a fair and open business environment and new momentum to drive economic reform measures that will benefit American company investments here as well as the broader Chinese economy.”
Stagnating economic growth and continued uncertainty in US-China relations were also cited as key reasons behind a growing number of companies saying they have a pessimistic outlook toward their industries’ market growth and China investment plans. Nearly one-in-four companies – and over 40% in the R&I sector – do not expect their markets to grow in 2020. In contrast, the Consumer and Services sectors displayed greater optimism in their outlook on market growth, due to anticipated growth in the number of middle-income households. Some 37% of members, the largest proportion since 2013, say they are delaying additional investments in 2020, or are even looking to reduce their investment footprint. Nearly one-third of members report bilateral uncertainties as a key reason for doing so.
But despite financial setbacks and growing caution when it comes to investment, China remains a top priority for most member companies. A combination of concrete actions taken in 2019 coupled with reforms in the financial services sector have boosted members’ confidence in the Chinese government’s commitment to further open its market to foreign investment. Furthermore, a higher proportion of foreign businesses say they felt more welcome in China in 2019, despite ongoing turbulence in the bilateral relationship. Some 63% of members believe that foreign companies in their industry are treated equally or preferentially in comparison with local companies. However, more than half of the respondents from the Technology sector, a sector in which American companies should be highly competitive, say they are treated unfairly. Despite efforts by the Chinese government in 2019 to open its markets, market access barriers remain in particular industries. More than half of our members say they would increase investment in China if markets were to open on a par with the US.
The Phase One trade deal had not yet been signed at the time of the survey and none of our members reported that they were anticipating the need to cope with the impact of a major epidemic like COVID-19. Businesses will likely experience a significant shock from the impact of COVID-19, but early communications indicate that member companies remain committed to the China market. However, the challenges and hopes reflected in the survey remain salient for both policymakers and business executives as they adjust their 2020 strategies.
Members emphasize that the US government can be most supportive of American business in China by continuing to advocate for a level playing field, prioritizing a “results-oriented framework for regularized government-to-government communication” and reducing tariffs on goods exported from China. Meanwhile, members said they would be most likely to increase investment in China if the Chinese government were to increase the transparency, predictability and fairness of the regulatory environment; ensure greater protection of IP; and limit the use of industrial policies that tilt the playing field in favor of domestic companies, especially state-owned enterprises.
The survey was conducted in late 2019. It was sent to 771 AmCham China member company representatives, of which 372 completed the majority of the questions.
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