Foreign firms hit by labor costs, shortage

Labor costs and labor shortages are the biggest risks facing US firms in China and air pollution has become one of the negative factors driving expatriates out of China, the head of a US business group said Wednesday.

Speaking at the release in Beijing of the 2013 State of American Business in China White Paper, Christian Murck, president of the American Chamber of Commerce in China (AmCham China), said one of the impacts of rising air pollution is that US companies have begun to offer hardship premiums for their expatriate staff in China.

Air pollution is "a truly negative factor" for US firms doing business in China, Murck said.

The last few months have seen the worst air pollution on record in China with a lot of cities frequently shrouded in suffocating smog, causing concerns among expatriates.

Peter Davies, a US expatriate in Beijing who has lived in the Chinese mainland and Hong Kong for 10 years, said he is leaving China in June because his health is deteriorating and the pollution aggravates his condition.

"I need to get back to a clean air environment in order to help my health improve," Davies told the Global Times Wednesday.

"Air pollution is indeed a great challenge for China in retaining foreign talent. Improving air quality is a systematic project requiring adjustment of economic structure to focus on technologies and services," Bai Ming, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, told the Global Times.

"Foreign companies should also contribute by investing less in high energy-consuming industries and more in technologies in China," Bai said.

Meanwhile, the white paper released Wednesday showed that human resource issues represent a top business challenge facing US firms in China.

The number of AmCham China members identifying labor costs and labor shortages as the greatest risks facing their operations in China nearly doubled in 2012 from 2011, the paper showed. Murck said this factor had already driven some US firms out of China, especially from eastern coastal areas.

"China's western regions have great potential and still enjoy labor cost advantages. To attract foreign investors, western regions should upgrade industrial support facilities and improve integration of industry chains," He Weiwen, co-director of the China-US-EU Study Center under the China Association of International Trade, told the Global Times Wednesday.

The white paper also showed that China remained one of the top three investment destinations for American firms in 2012 due to their strong performance in China and expectations of significant growth in domestic demand over the next three years.

China saw a drop in foreign direct investment (FDI) by 3.7 percent in 2012 from the year before, the first decline since 2009, but FDI from the US rose 4.5 percent year-on-year in 2012, official data showed.