Although US businesses at large remain positive about China’s business climate, their optimism is being tested by slowing growth, a new survey by the American Chamber of Commerce in the People’s Republic of China (AmCham China) reveals.
For the ‘2014 Business Climate Survey’, AmCham China polled 365 of its members on issues such as the investment environment, human resources and the Shanghai free trade zone (FTZ). The survey results reflect the current realities of operating in China and the uncertainty that goes along with it, noted AmCham China chairman Gregory Gilligan. However, AmCham China also sees optimism and confidence among its members that China’s leadership is set on reform and that foreign business has an important role in the country’s future. “This is clearly a period of transition for China, and AmCham’s members are hopeful that this marks the start of a new era in China’s development,” said Gilligan.
Reality Sinks In
Following years of impressive growth, US companies are now more soberly assessing China’s economy and the overall business environment. This 2014 survey revealed that while many companies are still profitable in China, costs and other challenges are rising. Despite optimism for short-term business prospects, companies have become increasingly cautious about the future, as growth in revenue and profitability are slowing down.
For the third straight year, less companies reported substantial revenue increases, outnumbered by those reporting slight increases or slight decreases. However, fewer than 20% describe the quality of China’s investment environment as deteriorating, and more than 80% perceive the quality as improving or staying the same.
AmCham China members revealed a number of fundamental challenges to doing business in China, including:
- Rising labour costs.
- Inconsistent or unclear laws and regulations.
- Difficulties in obtaining reliable data.
- The influence of state-owned enterprises.
- Issues with human resources.
Furthermore, AmCham China members said they are facing challenges that their Chinese competitors are not. Fewer respondents than ever believe that licences are granted equally between foreign and Chinese companies. Fully 68% still see intellectual property rights (IPR) enforcement in China as ineffective, and 40% have observed that foreign companies are singled out in pricing and anticorruption campaigns.
Regardless of the challenges, US businesses are still optimistic overall. About 35% of AmCham China members expect a positive impact from the Shanghai FTZ and 44% expecting the same from the bilateral investment treaty. Additionally, about three-quarters of companies are optimistic or at least slightly optimistic about their two-year business outlook in China.
AmCham said it is confident in the Chinese government’s resolve to reform. “Many tough decisions remain for the country, but the most difficult decision, to embrace reform, has already been made,” Gilligan said.
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