US companies in China are Finding it Harder to Make Money
As growth slows in the world’s second-largest economy, U.S. companies are looking for more reasons why they should stay and invest more.
Many members of the Beijing-based American Chamber of Commerce in Chinasaid they are earning less in the country, and that market access remains an issue in certain industries despite recent Chinese government efforts, according to a survey conducted late last year and released Tuesday.
“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,” the report said, citing responses from more than 370 company representatives.
“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 report said.
The survey was conducted before the U.S. and China eased more than 18 months of trade tensions by signing a phase one trade agreement in January, and prior to the outbreak of the new coronavirus that has killed more than 3,100 people in China. Officially called COVID-19, the disease has now hit more than 100 countries including the U.S. and several in Europe. Fears of the virus’ impact on worldwide economic growth have sent global markets reeling.
Virus hits to trade, business
“Both sides reflect that they’re still talking about the phase one trade deal and how they’re working through the COVID-19 impact to it,” Greg Gilligan, AmCham China chairman, said on a call with reporters Tuesday morning.
“They’re still talking very actively about it. It has not been shelved as a result of COVID-19,“ he said. “But (we) can expect some impact to it.”
The virus is expected to hit China’s economic growth, at least in the first quarter. National GDP growth slowed to 6.1% last year, and is now widely expected to grow between 5% and 6% this year at best.
A flash survey of 169 member companies from Feb. 17 to 20 found that nearly half expect their China revenues this year to decrease if business cannot return to normal before April 30. The chamber is planning a follow-up survey in coming weeks.
Growth not as easy in China
While the annual business sentiment study conducted last year showed that China remains a top priority for most U.S. companies in the long term, the survey painted a more challenging picture of the world’s second-largest economy:
- 21% of members reported a drop in revenues last year, a sharp increase from 7% in 2017.
- Just 61% of members described their financial performance as “profitable,” the lowest in almost 20 years of asking the question.
- Nearly one-in-four companies do not expect their markets to grow in 2020, although businesses in consumer and services sectors were more optimistic given China’s massive middle-class.
- 37% of members, the largest proportion since 2013, say they are delaying additional investments in 2020, or are even looking to reduce the scale of their investment.
- Nearly one-fifth of respondents have moved or considering moving capacity outside of China, although fewer companies plan to relocate out of China compared with previous years.
“The adjusting (of) supply chains by seeking components or assemblies outside the U.S. or China were already trends that were in place over the last two years,” Alan Beebe, AmCham China president, said on a call with reporters Tuesday morning. “In fact, this year it was somewhat less of a concern and I think that’s partially because companies had already gone through the adaptation process.”
“I do think there’s a sense that the phase one trade agreement provides a good start in terms of putting a floor into what was a downward-spiraling U.S.-China relationship into something that’s much more stable,” Beebe added.
Foreign companies have long complained about unequal competition with Chinese businesses, particularly state-owned enterprises. Amid trade tensions with the U.S., Chinese authorities have announced greater access for foreign firms in some industries such as finance.
Last year, the government also rushed to pass a new Foreign Investment Law which aims to limit forced technology transfer, and improve intellectual property rights — 69% of survey respondents said China’s intellectual property protection has gotten better in the last five years, an increase of 10 percentage points from 2018.