Fragile diplomatic ties between China and the United States remain the most pressing concern for U.S. firms in China and Hong Kong, but many continue to report higher profitability, according to the latest annual business climate report by the American Chamber of Commerce in China.
While anxieties over the U.S.–China relationship have increased since 2021, rising tensions between the two countries emerged as a key concern for the third consecutive year in the American Chamber’s (AmCham) latest survey. There is growing concern about inconsistent laws and regulations, increasing labor costs, data security concerns, and growing competition from private Chinese firms.
Except for 2023, when COVID-19 restrictions emerged as a significant issue, these challenges have regularly been among the top two or three concerns for members, the AmCham report noted.
“Tense U.S.–China relations headline a number of persistent challenges for members, with this issue under an ever-brighter spotlight, followed by regulatory inconsistencies and rising costs,” AmCham stated in the survey report.
“Despite the expansion in bilateral trade in recent years, mistrust between the United States and China remains high, and relations are strained,” said Sean Stein, chair of AmCham China.
The poll responses from 343 AmCham members were taken in October 2023 ahead of the meeting between U.S. President Joe Biden and Chinese leader Xi Jinping in San Francisco, which was viewed as a significant step toward normalizing ties between Washington and Beijing.
Nearly all of the AmCham members who were surveyed viewed the uncertainty in the U.S.–China economic relationship as the biggest sentiment buster. AmCham stated that it noticed particularly strong concerns about faltering bilateral economic ties in the technology and research-and-development sectors.
“Respondents in the tech and R&D sectors note significant challenges with cybersecurity law issues,” AmCham stated, noting that issues with particular data localization requirements continue to have a harmful influence on all industries.
China introduced a new data security regime in September 2021, including safeguarding “important data” and “core data” involving national and economic security, people’s welfare, and matters of critical public interest.
In the second half of 2022, China introduced new guidelines requiring case-by-case clearance for moving and exporting data, which also posed added restrictions on the use of data by businesses.
However, industry insiders say China has been sluggish in approving data export applications since the new data security laws were enacted, which is troubling for companies trying to move data offshore in the wake of economic challenges.
An Unwelcome Feeling
AmCham members highlighted that market access was a significant worry, with one-third of those surveyed complaining that they were treated unjustly compared to domestic rivals.“Among the surveyed companies, 39 percent indicate that they feel less welcome in China compared with a year ago,” AmCham stated in the survey report.
Regulatory enforcement has emerged as another significant challenge leading to licensing difficulties in public procurement and government financial assistance or subsidies.
There’s also political pressure, consistent with the previous year’s findings, with 72 percent of respondents reporting feeling pressured to make remarks or refrain from commenting on politically sensitive topics, the survey revealed.
“This trend indicates a continued presence of political pressure in the foreign business community,” AmCham stated. “A majority (57 percent) of companies lack confidence that China will further open its markets to foreign firms.”
Most U.S. businesses in China are compelled to rely on management formed mainly by local mainland Chinese, with more than three-quarters of companies employing less than 25 percent foreign management.
AmCham members cite the unwillingness to relocate to China as the most significant impediment to hiring and retaining international expertise.
Negative Investment Sentiment
According to the survey, businesses have begun to lose confidence in China and aren’t eager to commit to more investments because of the growing challenges in doing business there.“Forty-three percent of surveyed members indicate that they do not plan to expand their investments in China in 2024, while 5 percent plan to decrease their investment, marking a 4 percent drop from 2022,” the survey report reads.
“Additionally, 37 percent of members intend to only modestly increase their investment by a margin [of between 1 percent and 10 percent], underscoring the continued cautious approach in the Chinese investment environment.”
These sentiments reflect an almost global trend.
The German Chamber of Commerce in China stated in January that an increasing number of German companies are exiting the Chinese market or considering an exit in 2024.
The Business Confidence Survey for 2023/24 revealed that about 9 percent of the chamber’s 566 members surveyed were disenchanted with the Chinese market.
Rising rivalry from local businesses, uneven market access, geopolitical threats, and economic headwinds were also cited as the main barriers faced by German companies in China.
In December 2023, the British Chamber of Commerce in China conducted a similar attitude survey, which revealed that U.K. businesses were also delaying new investments in China.
The chamber found that 60 percent of British businesses considered the slowing Chinese economy a significant threat to their operations, while 43 percent said they were struggling with regulatory issues such as license acquisition.
Still, AmCham stated that “members hope the U.S. government can moderate its rhetoric and pursue effective, high-level dialogues, while the Chinese government treats U.S. businesses fairly and engages more with the foreign business community.”
