By Alexander Chipman Koty
US businesses operating in China remain optimistic about their growth prospects despite the ongoing trade war between the two countries, according to a new report from the American Chamber of Commerce in Shanghai.
AmCham’s 2018 China Business Report surveyed 434 American companies between April 10 and May 10, 2018, and found that the clear majority of US businesses in China are profitable – though uneasy about China’s opaque regulatory environment.
Of the surveyed US companies, 76.5 percent were profitable in 2017, a mark nearly identical to the 76.9 percent who reported profitability in 2016.
Furthermore, 61.6 percent companies expected to increase their investments in China in 2018, mirroring the 62.8 percent expectation in 2017. That year, 53 percent of companies ultimately did increase their investments.
Strongly performing industries include chemicals, where 81 percent firms reported higher revenue growth in China than globally, and pharmaceuticals, medical devices, and life sciences, which reported 79 percent growth, compared to 57.7 percent overall.
The predominant challenges that US companies report facing in China continue to be the country’s regulatory environment, which 60 percent of those surveyed said lacked transparency. The near absence of intellectual property protection and difficulties in obtaining licenses are cited as the biggest regulatory challenges – singled out by 61.6 percent and 59.5 percent of the respondents, respectively.
Another regulatory challenge US businesses face in China is its Cybersecurity Law, which came into effect last year. 41 percent of companies impacted by the law said that it prevented them from leveraging global systems, and 31 percent had to set up a data center and cloud presence in China because of the law.
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Made in China 2025, another controversial policy that has taken center stage in US-China tensions, drew mixed reactions. Although Made in China 2025 has been a focal point for criticism from the Trump Administration, 48 percent of respondents considered it a revenue opportunity, while 24 percent held a negative view.
Nevertheless, 21 percent of US companies said that they faced pressure to transfer technology to Chinese partners. These pressures were about twice as common in the aerospace (44 percent) and chemicals (41 percent) industries, which the Chinese government considers strategically important.
Besides China’s regulatory environment, rising costs (95.6 percent) and competition from domestic competitors (85.7 percent) were widely cited as the biggest operational challenges for US businesses in China.
Notably, the survey was conducted at a time when the US government was threatening China with tariffs, but before the US formally imposed them on US$34 billion worth of goods – and soon potentially up to US$250 billion.
The strategy of imposing tariffs on China was unpopular at the time of the survey, with only 8.5 percent supporting the strategy. However, a much higher 41.5 percent supported the US adopting investment reciprocity as a way to press China to open market access.
The full 2018 China Business Report from the American Chamber of Commerce in Shanghai can be accessed here.
China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices in China, Hong Kong, Indonesia, Singapore, Russia, and Vietnam.. Please contact email@example.com or visit our website at www.dezshira.com.