GUANGZHOU, China, March 1, 2017 /PRNewswire/ -- The American Chamber of Commerce in South China (AmCham South China) today released its 2017 White Paper on the Business Environment in China and 2017 Special Report on the State of Business in South China.
The 425-page White Paper, now in its ninth year, presents a highly-researched, exhaustively-cited account of the on-the-ground business environment in China. The Paper argues that a shift in the investment practices of multinationals has begun and China must realize that, in order to not just attract foreign investment but to retain foreign and Chinese investment in China, it will need to seriously compete with overseas destinations and begin to offer truly attractive incentives which would finally put China at par with other global players.
The 2017 Special Report on the State of Business, meanwhile, aggregates and analyzes the experiences of more than 230 of the companies who participated in the chamber's annual State of Business Study. This year, 77.2% of participants reported that their primary business focus was providing goods or services to the Chinese market, while only 22.8% reported a primary focus of manufacturing for export.
South China, led by Guangdong Province, continues to be the best location for foreign investment in China. The Study shows that an overwhelming majority of companies consider the current business environment in South China to be "good" or "very good". At the same time, a similar majority proved to harbor positive sentiments towards the China market, replying that they feel "slightly optimistic" or "optimistic" about the economy. The Study shows that in 2017 AmCham South China members have budgeted to reinvest, from profits, US$12.6 billion to expand existing operations in China, a 4.12% decline from 2016.
The results of this year's Study present a stark cause for grave concern about the state of the Chinese economy and its current trajectory. This is clearly evident when reviewing the result of one of the new questions included in this year's Study, which stated: "Did your company shift any planned reinvestments to other markets?" In 2016, although 29.9% of respondents reported no shift, 13.3% of wholly foreign-owned enterprises, 11.4% of joint ventures, and 26.67% of representative offices of foreign enterprises, representing a substantial number of respondents, replied that they had shifted some reinvestments to other Asian, ex-China destinations. Among the Chinese company respondents, a significant percentage (17.6%) said that they had moved some reinvestments overseas to other Asian destinations. Approximately 30% of respondents cited rising operational costs in China as a major driving factor for diverting reinvestment to other destinations. Other major factors named were the perceived uncertainty of market prospects in China, more attractive opportunities in competing destinations outside of China and the fierce local competition in China due to an uneven playing field.
The Study further reveals that in 2016, 50% of multinationals with existing operations in China cancelled their reinvestments of US$250 million or more, while at the same time, doubling their reinvestments in the lower categories of less than US$250 million. Also for 2017, 50% fewer multinationals have budgeted reinvestments in the US$250 million or more category than last year. However, they have at the same time, doubled their 2017 budgets in the reinvestment categories of less than US$250 million. This trend suggests that executives on the ground in South China have maintained a high level of confidence in the future of the China market and are investing amounts within their decision-making ability. Executives at corporate headquarters, however, appear to be deferring large investments which require their sign-off. We predict that the cancellation of larger reinvestments in 2016 and reduced reinvestment budgets for 2017 will translate into reductions in China's exports in 2018 and 2019.
The Study also shows China is currently paying the price for a situation which occurred in 2014, the perceived "targeting" of foreign-invested enterprises. At the end of 2014, our Special Report, released in March 2015, revealed that 25% of multinationals with existing operations in China postponed or cancelled their investments of US$250 million or more. The 2015 Study showed a 9.3% reduction in planned reinvestments by AmCham member companies; more devastatingly, the same Study revealed a 16.9% reduction in planned reinvestments for a three-year period from 2015.
Looking at export numbers for 2016, while total Asian exports (ex-China) grew by above 7% year on year, China's exports remained sluggish at around -7%. Most reinvestments in factories require 2 to 3 years for construction before producing goods. Given that the above-mentioned postponed or reduced reinvestments would have produced goods for exports in 2016 - and keeping in mind that more than half of China's exports are produced by foreign invested enterprises, it can be deduced that those investments were shifted to other parts of Asia from China and are now producing exports for those countries.
AmCham South China also announced that it will host the 2017 APCAC Asia Pacific Business Summit in Guangzhou, April 19 to 22. The Business Summit will be attended by more than 600 business and industry leaders as well as media, academia, policy experts, ambassadors and top government officials from the U.S., China, and from across 22 economies in Asia Pacific. Speakers will include: Walmart Global CAO; HSBC Global Banking Chairman - Americas; Commissioner of Miami-Dade; Senior Leader of Guangdong province; Vice Governors of provinces of Fujian, Guangxi, and Hainan. Also, Mayors/Vice Mayors of major Chinese cities such as Guangzhou, Shenzhen, Zhuhai and Dongguan, are scheduled as speakers. The Business Summit also expects several U.S. state governors and city mayors to attend.
The Business summit is fully supported by the U.S. Chamber of Commerce, the Asia Pacific Council of American Chambers of Commerce, and governments and businesses from U.S., China and 22 economies in Asia Pacific. Annual sales volume of the companies already committed to attending this Business Summit exceeds US$600 billion.
About White Paper on the Business Environment in China and Special Report on the State of Business in South China
The White Paper on the Business Environment in China offers a summary of China's impressive accomplishments since the "Opening Up" and examines the key influences on the business environment in present-day China, such as national policy initiatives and the global economic crisis.
The Special Report on the State of Business in South China is a quantitative Study of the business environment, conducted for consecutive years by AmCham South China. Each year, AmCham's member and non-member companies participate in AmCham's State of Business Study, results of which will be garnered and edited into a separate publication.
Both documents may be downloaded free of charge from the chamber's website:
About The American Chamber of Commerce in South China
The American Chamber of Commerce in South China (AmCham South China) is a non-partisan, non-profit organization dedicated to facilitating bilateral trade between the United States and the People's Republic of China. Certified in 1995 by the U.S. Chamber of Commerce in Washington D.C., AmCham South China represents more than 2,300 corporate and individual members, is governed by a fully-independent Board of Governors elected from its membership, and provides dynamic, on-the-ground support for American and International companies doing business in South China. In 2016, AmCham South China hosted more than 10,000 business executives and government leaders from around the world at its briefings, seminars, committee meetings and social gatherings. The American Chamber of Commerce in South China is a fully-independent organization accredited by the U.S. Chamber of Commerce in Washington, D.C. All AmChams in China are independently governed and represent member companies in their respective regions.
SOURCE AmCham South China