Latest Business Climate Survey Highlights Concerns Over Rising Costs, Regulatory Hurdles

Mar 26, 2012, 01:30 ET from AmCham China

BEIJING, March 26, 2012 /PRNewswire-Asia/ -- After several years of strong financial performance, US companies in China have begun to temper their outlook amid slower economic growth and rising costs, according to the 2012 Business Climate Survey conducted by the American Chamber of Commerce in the People's Republic of China (AmCham China).

Despite these new pressures, China is increasingly viewed as a compelling market in its own right. A steadily-growing majority of survey respondents – 66 percent in 2012 – say their goal is to produce goods or services for China, up from 58 percent just two years ago.

A significant number (39 percent) said their profit margins in China were higher than in other geographies around the world. Just over three quarters of those surveyed expect their China revenues in 2012 to be higher than last year.

Yet businesspeople surveyed by AmCham China also expressed more measured optimism than last year. Corporate revenues are expected to grow at a slower pace than in 2011. Against a backdrop of less robust sales gains, many respondents have also begun to worry about rising costs, including higher wages and China's new social insurance tax.

At the same time, those surveyed say inconsistent or unclear business policies remain one of their biggest challenges in China, and there are growing concerns that momentum for regulatory reform has slowed.

"Our members view China as a critical long-term growth market, and over 80 percent of them plan to increase investment in their operations this year," said AmCham China Chairman Ted Dean. "However, China's increasingly advanced economy requires a more open, transparent and market-oriented regulatory regime. Promoting greater government transparency and more vibrant market competition would benefit Chinese as well as foreign companies. "

Survey highlights include the following:

  • Eighty-two percent of members surveyed plan to increase investment in their China operations in 2012.
  • Despite widespread plans to boost investment, eighty-nine percent of member companies believe China is losing its competitive advantage due to rising costs, up 11 percentage points from last year. Just over three quarters of respondents said the cost of social benefits would hurt their China operations, compared to 53 percent a year ago.
  • Many respondents are concerned that domestic companies enjoy more favorable treatment in securing required business licenses. In 2011, the percentage of respondents who said licenses are granted equally to foreign and Chinese companies declined by seven percentage points to 22 percent.
  • One third of respondents say policies that force technology transfer in China have hurt their company or their clients' assessment of the business environment in China.
  • Seventy-nine percent of respondents rate China's enforcement of intellectual property rights (IPR) as ineffective. The percentage of respondents who rated China's IPR enforcement as effective declined nine points from last year.
  • Almost three fourths of those surveyed said slow or unstable Internet access makes it harder to do business efficiently in China.

2012 Business Climate Survey Quotes and Background

Please attribute all quotes to AmCham-China Chairman Ted Dean.

On the financial outlook for AmCham China member companies: "China remains a key market for our members, both in terms of sales growth and healthy profits. For example, over three quarters of our respondents expect their China revenues in 2012 to rise from last year's levels. But after several years of extremely strong sales expansion, many are now reporting a slight slowdown in the pace of growth, in keeping with China's own efforts to cool the pace of GDP gains."

On expansion plans and the search for talent: "Over eighty percent of members say they plan to increase their investment in China in 2012. However, many report problems recruiting the qualified managers and employees they need to support this growth. The percentage of respondents who listed staffing as a top business challenge rose significantly from year-ago levels."

On China's eroding cost competitiveness: "Despite plans to increase investment in China in 2012, many of our members also noted concerns about substantial increases in costs. The reasons include rapid increases in wages as well as the cost of benefits under the new social insurance law. Eighty-nine percent of respondents said China is losing competitive advantages due to rising costs. We believe this only underscores the urgency of implementing market-oriented reforms that would further open markets, level the playing field between domestic and foreign firms and encourage China's own companies to become more innovative and competitive at a global level."

On the need to modernize business regulations: "There is a growing perception that business regulations have failed to keep pace with China's increasingly sophisticated and globalized economy. Our members indicate increasing concerns about a business licensing process that many believe discriminates against non-Chinese firms. At the time of the survey, respondents reported seeing little progress on IPR protection, though new government initiatives announced last year may yield improvements. Also, members report a lack of confidence in China's cyber security environment. We believe efforts to redress these concerns would strengthen the foundation for sustainable economic growth and promote the development of more innovative domestic service industries in China." 

About the annual Business Climate Survey:

Each year AmCham China surveys its member companies on a broad range of topics relating to the business climate in China. The fourteenth annual survey included responses from 390 members based in Beijing, Tianjin, the Northeast chapter (Dalian) and Central China chapter (Wuhan). Respondents work for companies across a broad spectrum of industries, from financial services to healthcare, manufacturing, technology, and retail. The survey was conducted in November and December of 2011.

About the American Chamber of Commerce in the People's Republic of China:

AmCham China is a national non-profit organization representing the interests of nearly 2,900 companies and individuals doing business throughout China. Headquartered in Beijing, it has chapters in Tianjin, the Northeast (Dalian) and Central China (Wuhan). For more information, visit: 

SOURCE AmCham China