Survey: U.S. Companies Optimistic Despite Slowing China Economy Year-on-year US company performance dips for second year in a row, challenges persist yet US companies remain committed to transitioning China market
SHANGHAI, Feb. 28, 2013 /PRNewswire/ -- U.S. companies in China continue to report strong financial performance and rank China as a top global investment destination. But for the second year in a row, American businesses experienced a dip in year-on-year performance indicators – profitability, revenue and operating margins. A leveling off in performance reflects stubborn business challenges and a Chinese economy slowed by its ongoing transition from export and investment-led expansion to one sustained by consumption and services. This is according to AmCham Shanghai's 2012–2013 China Business Report released at the Four Seasons hotel in Shanghai.
Brenda Foster, President of AmCham Shanghai, said, "We should no longer expect China's economy to grow at the same double-digit rates of years past. Steadily rising costs, human resource constraints and an increasingly competitive business environment will also be the rule rather than the exception in the years ahead."
Continued Foster, "Yet, U.S. companies remain committed to the China market, which is critical to their global strategies. As the Chinese economy continues its transition to what we expect to be a healthier and more sustainable growth rate focused on consumption and services, the China market offers American businesses tremendous opportunity."
The report, based on AmCham Shanghai's annual China Business Climate Survey first launched in 1999, found that of the 420 companies surveyed, 73 percent were profitable in 2012. This number declined from 78% in 2011 and 79% the year before. Similarly strong numbers for margin and revenue growth were tempered by drops for both over the past two years.
At the same time, survey results indicate that U.S. companies are adjusting to China's transitioning market, having largely moved away from the low-cost export model that once drove U.S. business strategies in China. Nearly two-thirds of companies surveyed said they were "in China for China." They are in China to compete in the growing domestic market driven by steadily increasing household income, which grew by nearly 10% in 2012, and spiking consumption projected by McKinsey & Co. to triple within the next 20 years.
A record 91 percent report an "optimistic" or "slightly optimistic" outlook for their 5-year business prospects in China, a number that has scarcely dropped over the past several years.
Robert Theleen, Chair of AmCham Shanghai and Chairman and CEO of ChinaVest, commented, "U.S. managers are benefiting from 'in China, for China' business strategies driven by double-digit personal income growth." Continued Theleen, "While European companies tend to dominate the luxury brand markets, the U.S. has carved out large parts of the rising middle-class branded consumer sectors and the transition in China's market favors companies targeting this consumer sector."
Yet U.S. companies continue to struggle with bureaucracy and an unclear regulatory environment in China, which were ranked as the number one and two regulatory challenges in this year's survey, respectively. Fifty-four percent of U.S. managers cited what they observe as uneven enforcement of laws and regulations that favor local Chinese companies in their industry as a hindrance to their business, a jump of 8% from the year before.
Perhaps most concerning, in this year's survey more than two-thirds of companies said the regulatory environment was either "not improving" or "deteriorating," a consistent trend over the previous three years.
"China is a tough place to do business, it always has been, and this year's survey results quantify that," said Kent Kedl, Managing Director, Greater China and North Asia, Control Risks. "While challenges like rising costs, talent shortages and increasing domestic competition are manageable, regulatory and policy challenges that may unfairly impact the competitive environment in China have the potential to make continued investment and organic expansion a more significant challenge for U.S. companies to overcome."
Despite the challenges, survey results indicate that China remains an investment priority for U.S. companies.
China ranked as the top investment destination for more than one-fifth of companies in this year's survey, and 54% rate it a top-three investment priority. A near majority state they plan to make additional global investment inside China.
Less than 15 percent of companies reported they have moved or plan to move production out of China to respond to rising costs in China, and 13% have moved production to lower-cost regions within China or have plans to do so.
As more and more U.S. companies in China target the Chinese domestic market, 59% of survey respondents indicate that they export finished goods or components to China from the U.S. to support their operations in China. This "pulling" of U.S. exports to China by American businesses in China supports production and jobs at home – a trend that has increased over the past three years.
About the 2012–2013 China Business Report
The 2012–2013 China Business Report highlights the results of the Chamber's China Business Climate Survey, a comprehensive survey of U.S. companies with operations in China. First launched in 1999, this year's report builds on the results of more than 10 years of survey data. The 2012 survey was conducted online in November and December of 2012. A record 420 member companies participated in the anonymous survey, yielding a response rate of 25%. The AmCham Shanghai China Business Climate Survey is one of the longest running surveys of American companies in China.
About The American Chamber of Commerce in Shanghai
The American Chamber of Commerce in Shanghai, known as the "Voice of American Business" in China, is the largest and fastest growing American Chamber in the Asia Pacific region. Founded in 1915, AmCham Shanghai was the third American Chamber established outside the United States. As a non-profit, non-partisan business organization, AmCham Shanghai is committed to the principles of free trade, open markets, private enterprise and the unrestricted flow of information.
AmCham Shanghai's mission is to support the success of our members by promoting a healthy business environment in China, strengthening U.S.-China commercial ties and providing high-quality business information and resources.
Visit www.amcham-shanghai.org for more information about AmCham Shanghai.
About Control Risks
Control Risks is an independent, global risk consultancy specialising in political, integrity and security risk. We help some of the most influential organizations in the world to understand and manage the risks and opportunities of operating in complex or hostile environments. Our unique combination of services, our geographical reach and the trust our clients place in us, ensures we can help them effectively solve their problems and realise new opportunities across the world.
AmCham Shanghai was pleased to work with supporting partner Control Risks on the 2012–2013 China Business Report.
SOURCE The American Chamber of Commerce in Shanghai