Concerns remain about regulatory challenges
The majority of U.S. companies are still optimistic about market growth potential in China, despite the regulatory challenges they face, according to a survey released Wednesday by the American Chamber of Commerce (AmCham China).
The 2016 China Business Climate Survey Report was based on a poll of AmCham China's member companies, which number nearly 500, and conducted in partnership with U.S.-based Bain & Company.
It found that China remains one of the top three investment destinations for 60 percent of the respondents, even though revenues and profitability came under pressure in 2015. The survey didn't list the other two top destinations.
"As China's economic growth has slowed down, this year's report shows that U.S. businesses will need to revise their strategies to ensure profitable growth in China," James Zimmerman, chairman of AmCham China, told a meeting in Beijing.
About 45 percent of the respondents reported flat or declining revenues in 2015 compared to 2014. The number of companies that reported profit increases in 2015 declined to 64 percent, the lowest level in the last five years, the report said.
However, financial performance differed significantly among the various industries. For instance, nearly two-thirds of services companies reported increased revenues, while nearly half of the industrial and resources companies reported declining revenues, according to the report.
Cautious investment plans
While China remains a top investment destination, fewer U.S. companies are planning to increase their investment in China during 2016, the report said.
By the end of 2015, 25 percent of the respondents had either already moved some of their capacity or were planning to move it out of China, and almost 40 percent reported moving capacity to the U.S., Canada or Mexico, said the report.
Huang Wei, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, attributed the more cautious investment plans to the rising costs and slower economic growth in China.
However, "although some investment will be reduced, high-end services companies, such as those in financial and medical services, will aim to enter China in the near future thanks to the large market and strong demand," Huang told the Global Times Wednesday.
These firms might have some concerns about market access limits, Huang said, noting that "China's policy to open up its market will not change, though the pace is relatively slow at the current stage."
In addition to the economic challenges, U.S. companies also reported increasing concerns about the transparency, predictability and fairness of the domestic regulatory environment, the report said.
Some issues might exist, but what matters more is that reform is further promoted to create a sound domestic regulatory environment to attract foreign capital, Lin Guijun, vice president of the University of International Business and Economics in Beijing, told the Global Times on Wednesday.
Future business opportunities
There were also numerous positive signs despite the challenging economic climate, and U.S. companies still see plenty of opportunities for their China business, Stephen Shih, a Bain partner and management consultant, said at the same meeting.
Growth in domestic consumption and the rise of the middle class offers opportunities in various sectors, while technology and R&D-intensive companies as well as those involved in consumer products and services could also benefit from the government's "Internet Plus" initiative and the growth of e-commerce, Shih said.
For their future development in China, innovation will be a business priority for most U.S. companies, according to the report, which said that foreign firms will need to continue to invest in innovation and talent to offer new products and services and serve new customer segments.
The China-U.S. Bilateral Investment Treaty will also be a critical component for future growth opportunities, said Zimmerman.
The report noted that U.S. companies recognize the progress that has been made in areas such as protection of intellectual property rights and the battle against corruption in China, and are supportive of continued efforts.
