With ongoing bilateral political tensions, lingering Covid-19 disruptions, and macroeconomic pressures, U.S. companies with operations in China are less optimistic about the business climate in the latter country, according to a new report.
Key Takeaways
- U.S. companies are less optimistic about the five-year business outlook in China than they were last year.
- Many are decreasing or reallocating investments they had earmarked for China.
- Recent tensions with the U.S. government and a slowdown in the Chinese economy were cited as reasons for the dire outlook.
A survey conducted by The American Chamber of Commerce in Shanghai with PwC China found the percentage of companies that are optimistic about the five-year business outlook in China dropped to 52%, the lowest level in the survey’s history.
Another 22% said they are decreasing their investment in China this year. Companies cited uncertainty surrounding the U.S.-China trade relationship and expectations of slower growth in China as factors in their reasoning.
Many companies said they’re redirecting investments that were planned for China. Others are considering moving their current operations out of China. Just 17% ranked China as No. 1 in their company’s global investment plans, a decline from 27% in 2021.
“China is becoming more challenging for foreign investors,” Sean Stein, chairman of AmCham Shanghai, said in a statement. “What businesses need above all else is clarity and predictability, yet across many sectors, companies report that China’s legal and regulatory environment is becoming less transparent and more uncertain.”
The AmCham Shanghai report comes as fears have been circulating recently that China, the world’s second-largest economy, could be headed for an economic “hard landing” because of debt accumulation in its property sector. This could have major implications for other countries, including the U.S.
There are also mounting business tensions in China. Recently, the nation extended a ban on employees of government agencies and state-owned enterprises using Apple iPhones. The Biden administration called the move “inappropriate retaliation” for the U.S. against China’s Huawei.
A third of companies said China’s policies and regulations toward foreign companies had worsened in the past year, according to the AmCham Shangai survey. Few companies consider the regulatory landscape to be transparent.
A majority of companies (70%) said data localization and cybersecurity requirements were hindering their businesses.
“After several high-level visits, the United States and China have taken steps to stabilize the bilateral relationship and a series of reforms announced in August signal the Chinese government’s desire to improve the investment climate,” Stein said. “If implemented, those reforms could reduce uncertainty and help restore investor confidence.”
