US Firms in China Gloomier Amid Bilateral Tension, Covid Curbs


Three-quarters of US companies in China told an AmCham survey that multiple issues from fickle policy changes to slow progress on market access forced them to put investments on hold

 

Three-quarters of American companies operating in China told a survey by the American Chamber of Commerce (AmCham) that a multitude of issues – from the increasingly fickle policy environment to Beijing’s stalled progress on market access – have forced them to put new investments on hold.

AmCham China President Alan Beebe told a webinar on Tuesday that just 25% of the 353 US-invested businesses surveyed between October and November, for the 24th edition of the China Business Climate Report, had plans for fresh significant investments in the world’s second-largest economy this year.

The harsher and unpredictable regulatory and policy environment was often cited by respondents, and 40% attributed the cloudy outlook for their China business to the country’s complicated and capricious policies and regulation – up from 24% of firms that voiced similar views in AmCham’s survey in 2021.

Clearly, more US firms in China are hedging their bets as they believe Beijing’s policies, from countering geopolitical threats to Covid-19-related travel and entry restrictions, have compounded the uncertainties they already face.

Beijing has also signalled an intention for increased Communist Party supervision of the day-to-day running of private and foreign companies.

“What’s more, Beijing’s emphasis on tech self-sufficiency and self-reliance has put some American businesses at a certain disadvantage and the recent policy drive towards ‘Common prosperity’ also has a lot of ambiguities,” Beebe said.

More American firms also said they felt unwelcome in China.

 

Profits Still Under Pre-Covid Levels

Underlying the widespread investment hesitancy was the finding that less than 60% of American firms were profitable in the immediate quarter proceeding the AmCham survey co-organised by PriceWaterhouseCooper, down from the 73% peak seen in 2017.

Overall profitability had rebounded from the level seen in the previous questionnaire, and the worst of China’s Covid-19 crisis, but firms are not back to pre-Covid levels.

Confidence that Beijing will make good on its pledges and open up more sectors is also wearing thin, with less than half of the AmCham members saying they expected positive outcomes. Last year, 61% of respondents were hopeful.

“American firms hope they can one day have the same untrammeled market access enjoyed by Chinese companies in the US… [China’s] central government has made promises and issued directives to reform and open up but the access issue really boils down to local implementation and we see complaints about uneven enforcement and interpretation,” Beebe said.

In regard to bilateral ties, about a quarter of members saw no imminent uptick in relations, feeling that there would continue to be risks from longstanding issues. Some 58% reported that their business had been impacted by US-China tensions, up from 50% last year.

“In the last survey we had the so-called ‘Biden Bump’, as members hoped that ties may improve under the new president but the fact is that most of Donald Trump’s trade and business policies toward China are still in place,” Beebe said.

It was also notable that, while 66% of companies said they had faced political pressure from Chinese authorities or state media in the past year, such asa not making politically sensitive statements, 32% of respondents also indicated pressure from Washington, AmCham chairman Colm Rafferty said.

One instance cited was the completion of a review of US supply chains by the Biden administration, as any action adopted could potentially leave some American manufacturers in China in jeopardy.

 

Onerous Covid Restrictions

The latest survey also found 76% of new overseas talent and qualified candidates recruited by US firms in China could not move to the country last year, largely due to China’s prolonged border closure preventing international arrivals and the onerous quarantine protocols imposed by Beijing.

The AmCham president noted that Washington’s new ambassador to Beijing, Nicholas Burns, had been put in quarantine after arriving in Beijing last weekend.

AmCham said there were also fewer flights between China and the US after the Winter Games, so the processing of members’ applications for a fast-track travel channel for businesspeople had been slowed as a result, while the appeal of working for a US company had also been eroded.

“Many Chinese talents would rather not work for an American firm. The ‘Brand America’ has started losing value because of the tensions in the [bilateral] relationship,” one unnamed respondent to the survey wrote.

But, gripes aside, an overwhelming majority of AmCham members – 83% – said they had no plans to leave China, although some may be contemplating plans to relocate or duplicate some of their production and activities elsewhere.

Asked about the collateral impact from US and Western sanctions against Russia, Beebe said the survey was done before the crisis in Ukraine but AmCham had hosted three webinars last week on sanction compliance to help US companies in China navigate the issue.

He said not many US companies operating in China would export goods or services to Russia, while Chinese partners who import technology from the US and have business dealings with Russia must review their operations.

 

Note: This report was updated with original content on March 8, 2022.

 

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Frank Chen

Frank Chen is an Asia Financial correspondent who covers China business and finance with a special focus on market indexes. He has a keen interest in real estate, transport, infrastructure and consumer brands. He spends time in Shanghai and Hong Kong and speaks Mandarin, Cantonese, and English.