Chinese and U.S. flags fly near the Bund before the U.S. trade delegation meets their Chinese counterparts for talks in Shanghai, China, July 30, 2019.
Aly song | Reuters
BEIJING — More U.S. companies are finding it harder to make money in China than before the pandemic, raising concerns that companies may not stay there long.
According to an annual survey by the American Chamber of Commerce in China released on Thursday, 19% of member companies surveyed in 2023 said their profit margins before interest and taxes were higher in China than globally.
That’s up from 12% in 2022, when many companies in China were subject to strict Covid-19 controls.
However, the numbers are well below the 22% to 26% of U.S. companies that said margins in China were higher than worldwide from 2017 to 2021.
“It is concerning when our member companies are not profitable,” Michael Hart, president of AmCham China, told reporters on Thursday. “They won’t stay long if they’re not profitable.”
“This is a wake-up call for the Chinese government,” he said.
China’s economy grew rapidly in recent decades, becoming the second largest in the world after the United States
But China’s growth has slowed in recent years due to the three-year pandemic, a slump in its huge real estate market and a decline in exports.
The slowdown and accompanying decline in domestic sentiment have led to calls for Beijing to further stimulate the economy. While authorities have announced a number of measures to boost growth, it is unclear whether there is interest in large-scale stimulus measures as China looks to shift away from reliance on the real estate market to other industries.
You don’t come to China to break even, so we want more of our members to be profitable
Michael Hart
AmCham China, President
AmCham China’s survey found that 49% of members said profit margins in China were comparable to those globally last year, up one percentage point from 2022 and the same as in 2019.
A third of respondents said their margins were lower in China than globally, down from 40% who said this in 2022 but up from 30% in 2019.
Hart noted the improvement in 2023 compared to 2022. “Of course you don’t come to China to break even, so we would like to see more of our members be profitable,” he said.
The survey, which was conducted from October 19 to November 10, involved 343 respondents from various industries.
For 2023, 39% of members said they expect China sales to increase year-over-year – up from 32% in 2022.
In particularNearly half of companies in the consumer sector said they expect sales in China to increase year-over-year in 2023.
Stay in China, but don’t expand
Half of survey respondents said China was among their top three investment destinations globally, up 5 percentage points from its all-time low in 2022.
“One of the reasons why companies are very interested in China is research and development” and innovation, Hart said, pointing to factors such as China’s huge market and leadership in certain industries such as electric cars.
However, U.S. companies generally remain cautious about investing in China amid slower growth and rising geopolitical tensions.
According to the AmCham survey, nearly half of respondents said they either plan to reduce investment in China operations or do not plan to expand investment in the country.
The majority of U.S. companies surveyed said they intend to continue manufacturing in China. However, the proportion who said they were considering moving this capacity abroad rose to 12% in the last two years, compared to around 8% previously.
According to the Ministry of Commerce, foreign direct investment in China fell 8% to 1.13 trillion yuan ($160 billion) in 2023, the lowest level in three years. It did not say how much the US was investing in China.
A separate survey released last week by the German Chamber of Commerce in China found that among 566 respondents, the top reasons for not investing in China – or reducing investment – were low expectations of market expansion or expectations of slower growth in the country were.
More than 80% of respondents said China’s economy is facing a downward trend. The majority assumed that it would take one to three years for China to “regain robust economic development.”
The German Chamber of Commerce survey was conducted from September 5th to October 6th. It found that the main reason for increasing investment in China was by far the main reason for respondents to remain competitive there.
Waiting for progress
Chinese authorities have tried to boost foreign investment in the country over the past year. Last week, Chinese Trade Minister Wang Wentao said China and the US are working to create a more predictable environment for businesses.
He said Beijing had implemented a 24-point plan released in August to support foreign companies in the country – and that “more than 60%” of measures had been implemented or progress had been made.
When asked about the effort Thursday, AmCham China Chairman Sean Stein noted that the measures included suggestions from foreign business chambers in China, but AmCham would like to see Beijing “make more tangible progress.”
“It hasn’t been consistent across all sectors,” he said, pointing to some improvements in life sciences and tax policy. “There is definitely a push from local governments to attract investment.”
Stein said AmCham focused more on how China was moving forward with the 24-point plan than on high-level Chinese government meetings.
He also said the increased government visits between the U.S. and China did not reflect a fundamental change, but rather a recognition “that it is in their interest to stabilize relations.”
Rising tensions between the U.S. and China were members’ top concern for the fourth year in a row, according to the AmCham survey.
Read more about China from CNBC Pro
The second biggest concern of respondents to the most recent survey was inconsistent interpretation of regulations and unclear legislation and enforcement.
AmCham China’s latest survey found that Beijing’s cybersecurity rules on privacy generally made operations more difficult for members, particularly in the technology sector and research and development.
The Cyberspace Administration of China released a draft rule in October that would ease restrictions on data exports, but Stein noted that “this has not yet been implemented.”
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2024-02-01 06:20:09
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