UPBEAT ON ECONOMY – U.S. COMPANIES IN CHINA SHOW INCREASING CONFIDENCE

U.S. COMPANIES IN CHINA INCREASINGLY UPBEAT ON ECONOMY

A recent AmCham China survey of over 400 of its members finds greater optimism about future of U.S.-China relations and its members generally upbeat on economy.  Confidence within the American business community toward China’s economy is strengthening, despite significant concerns about the regulatory environment and the possibility of Trump Administration action against Chinese trade and investment practices.  Some 36 percent of respondents believe relations between the two countries will improve this year, compared with 17 percent last year, possibly influenced by the perceived success of President Trump’s visit to China and that of President Xi Jinping’s earlier trip to the U.S.

“Regarding the economy, there is cautious optimism that the ‘new normal’ rate of growth is sustainable for the foreseeable future, providing opportunities for business to expand,” said William Zarit, Chairman of the American Chamber of Commerce in China. “Nevertheless, the survey continues to paint a troubling picture of the regulatory environment in China. The best that can be said of this year’s data is that there appears to be a bottoming out of sentiment from the very low levels plumbed over the past few years. There continue to be challenges and areas of disagreement, but by offering our candid assessment of the environment our members operate in, we hope we can contribute to the healthier and more sustainable development of China’s economy.”

Sixty four percent of respondents reported revenue growth, up from 58 percent last year and 55 percent in 2015. For 2018, the average forecast for GDP growth was 6.3 percent, up from the 2017 prediction. Nearly six in 10 companies rank China among their top three investment priorities, up from the previous year but still below the historical average.  On the other hand, 75 percent of respondents continuing to feel foreign companies are less welcome in China than they have been in the past which is down from 55 percent last year and 46 percent feel foreign companies are treated unfairly compared to local companies.  For the third year running, respondents cited inconsistent regulatory interpretation/unclear laws and enforcement as the top challenge to doing business in China.

China compliance risks are one of the top challenges companies expect to face in 2018 despite business being upbeat on economy. Increased regulatory fairness, predictability and greater transparency are the steps respondents say would have the greatest impact on their level of investment in China. Specific reforms members would like to see include greater access to officials and consistent implementation of national policies at the local level.

“Facing a market with so many uncertainties — and domestic competitors that continue to grow stronger — foreign companies must increase their organizational agility in China,” said Stephen Shih, a Bain partner based in Shanghai. “They need to grasp opportunities in innovation and digital and be able to respond to rapid and unpredictable changes in the regulatory and competitive environments. New organizational models and ways of working are likely to become an imperative in the next chapter of growth for foreign businesses in China.”

The survey also found about being upbeat on economy:

• One-third of respondents plan to expand their investment in China by more than 10 percent in 2018
• 45 percent of respondents report domestic competitors are more attractive to job hunters, up from 36 percent last year
• Rising costs and changes in the regulatory environment are the prime reasons 23 percent of respondents say they have moved or plan to move capacity from China
• 67 percent of Consumer companies see China as either the leading edge of digital technology in their field or more advanced than other markets

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