Rising costs take toll on US investments

American investments in China have shown signs of slowing while the Chinese government works on reforming the foreign investment management system.

While many companies are still profitable in China, increasingly fewer are reporting substantial revenue increases, and those reporting even increases or slight decreases are more prevalent, according to the 2014 China Business Climate Survey Report, released by the American Chamber of Commerce China.

Nearly half of US Chamber of Commerce China member survey respondents still regarded China as a top-three investment priority. For the first time in the history of the business climate survey, the majority of members said they planned to increase China investments by 10 percent or less this year. The proportion of companies planning no increase in investment rose sharply, according to the survey.

According to statistics from the Ministry of Commerce, US investment in China fell 4.6 percent year-on-year in the first six months of the year. During the same period, investments from the European Union and Japan also declined.

Member companies said they considered the slowing of China's economy as the greatest risk for their existing operations in China, according to the report. Other factors including market access restrictions, concerns with regard to government policies and the perception that foreign invested companies were less welcome in China than before also contributed to the scaling down of expansion plans.

The report said labor costs were the top concern among foreign companies in terms of investment in China, followed by unclear laws and inconsistent application.

Rising costs were generally deemed as the major contributor to China's perceived loss of competitiveness. Other obstacles facing foreign invested companies included industrial policies that favor State-owned enterprises, Internet censorship, increasingly stringent regulations and collecting and protecting data, according to the survey.

Despite the drop in American investments in China, the US Chamber of Commerce China was encouraged by the commitments from the 2014 Strategic and Economic Dialogue to engage in timely Sino-US bilateral investment treaty negotiations and intensify negotiations on a negative list, both of which will begin in 2015.

The significance of the Sino-US bilateral investment treaty negotiation on China's investment sector is as important as China joining the World Trade Organization 15 years ago, said Max Baucus, US Ambassador to China, in a speech in June, according to media reports.

Baucus made it clear that promoting BIT negotiations between China and the US would be his priority during his tenure.

The Chinese government's efforts to reform the foreign investment regime include the economic reform plans, which were rolled out at the Third Plenum of the 18th Central Committee of the Communist Party of China last November. They also include setting up China (Shanghai) Pilot Free Trade Zone in September last year and the Strategic and Economic Dialogue between China and the US.

China's commitments at the S&ED included measures to proactively open up service, e-commerce, commercial factoring and financial sectors to foreign participation.