Slower growth poses challenges: AmCham

A businessman from the United States talks with a Chinese business partner at an investment fair in Xiamen, Fujian province. ZHANG GUOJUN/XINHUA

Companies changing strategy to cope with new investment environment

Slower Chinese growth will see US companies cut investment in the world's second-largest economy, the American Chamber of Commerce in China said on Tuesday.

"With slower growth, we see more challenges," AmCham China Chairman Gregory Gilligan told reporters in Beijing. "That is the reason some American companies are scaling back their investment plans."

China's economy grew by an annual 7.4 percent in the January-March period, the slowest in 18 months. US non-financial direct investment in China dropped 1.91 percent year-on-year to $1.04 billion in the same period, according to the Ministry of Commerce.

China is in a transition period, and American companies in the country are less profitable than before. Fewer plan big increases in investment while others plan none, according to AmCham China's Business Climate Survey in March.

"While slower growth and market access barriers were also the No 1 and No 2 drivers for lowered investment, there has been a very significant jump in both factors in this year's survey," Gilligan said. "Obviously, with slower growth in China, there is less need for investment. But also, as the overall economy slows, market access barriers and other constraints become a more prominent concern."

With slower growth, member companies perhaps have less need for investment based on the old economic model that relied more on such things as exports and infrastructure spending and are looking to increase investment in those areas where implementation can happen in the best possible way, Gilligan said.

China rolled out a blueprint for economic reform in November. It constitutes a critical opportunity for the country to transform from the current strained economic model to a robust, dynamic and sustainable one.

The reform agenda, if well followed through, will have a comparable impact to China's joining the World Trade Organization in 2001 and should open much broader opportunities for both Chinese and American companies, Gilligan said.

"The reform agenda is extremely encouraging, although there's a little bit of a wait-and-see attitude because the implementation of the reform agenda will be decisive on how much progress we all can make together and in what period of time," he said.

Gilligan said the chamber identified four priority areas for substantial and sustainable reforms: investment, intellectual property rights, transparency and engagement, and standards.

Zhang Jianping, a researcher at the Institute for International Economic Research at the National Development and Reform Commission, said China's investment environment, on the whole, kept improving and the country will remain the world's leading investment destination in the medium and long term owing to demand for infrastructure investment from inland provinces, the emerging consumption market, along with the opening of the service sector.

"More foreign investment is shifting into China's service sector, which is less open than developed economies and thus led to complaints from foreign companies in China," Zhang said. "As the government advances the Sino-US bilateral investment treaty talks, and the Shanghai free trade zone" pilot project aims at easing commerce and investment, the complaints will gradually diminish.

The chamber's report said 44 percent of members believed a bilateral investment treaty would have a positive or very positive impact on their business.