US businesses' optimism in China falls to record low, survey shows
SHANGHAI, Sept 12 (Reuters) – A combination of political tensions, China's economic slowdown, and tough local competition is dampening the confidence of U.S. companies operating in the country, according to a recent survey. Optimism regarding their five-year prospects in China has reached a historic low.
The American Chamber of Commerce in Shanghai revealed in its Thursday report that only 47% of U.S. firms expressed confidence in their five-year business outlook, down five percentage points from last year. This marks the lowest level of optimism since the survey began in 1999. Additionally, the percentage of companies reporting profitability in 2023 has also fallen to 66%, the lowest on record.
AmCham Shanghai Chairman Allan Gabor attributed the declining profitability of U.S. firms in China to several key factors. "It's domestic demand, it's deflation, and of course, we can’t overlook the membership's perceptions and concerns about geopolitics," Gabor stated. He emphasized how these challenges impact investment strategies and influence how companies shape their future business plans in China.
The survey polled 306 U.S. firms from various industries, highlighting the widespread impact across sectors. U.S. foreign direct investment in China also saw a significant drop, falling by 14% to $163 billion in 2023, according to the U.S. State Department.
Geopolitical tensions continue to be the top challenge for American businesses operating in China, with growing uncertainty about the future of U.S.-China relations, especially as the U.S. presidential election approaches. Many businesses are closely watching for potential shifts in policies that could affect their operations.
A key concern is the pending U.S. decision on higher tariffs for Chinese-made products, which President Joe Biden announced earlier this year. The proposed tariffs include 100% duties on electric vehicles (EVs), 50% on semiconductors and solar cells, and 25% on lithium-ion batteries, among others. Originally set to take effect on August 1, these tariffs have been delayed twice, but a final determination is expected soon.
In response to the looming tariffs, China has called on the U.S. to remove all tariffs on Chinese goods and has pledged to retaliate if necessary. The strained bilateral relationship was identified as the top challenge by 66% of surveyed U.S. businesses, with 70% citing it as the biggest obstacle to China's economic growth.
Despite these concerns, there was a small improvement in perceptions of China's regulatory transparency, with 35% of businesses believing it to be transparent, a slight increase from last year. However, concerns over favoritism toward local companies grew, with 60% of firms reporting preferential treatment for domestic competitors.
According to the AmCham report, 40% of U.S. firms—consistent with last year's figures—are actively redirecting or considering redirecting investments initially planned for China. The majority are looking toward Southeast Asia, with some also focusing on India as alternative markets.
This growing trend of shifting investments reflects the broader sentiment captured in a recent paper by the European Union Chamber of Commerce in China. The paper highlighted that the increasing challenges of doing business in China are beginning to outweigh the potential returns, echoing the concerns of U.S. companies.
