US firms still sticking with China market, but tensions, barriers remain gripes: survey

AMERICAN companies plan to double down on serving the Chinese market, even as they complain of more barriers to doing business there, a recent poll has found.

Some 43 per cent of firms plan to ramp up their resource commitment in China for the next 12 months, up from 25 per cent in 2020, and the most positive stance since 2018 - with almost all respondents adding that the aim of these investments is to reach the Chinese market.

"One of the main reasons companies continue to invest in China is to be competitive in the Chinese market, which is difficult without a presence on the ground," the US-China Business Council (USBC) said in a report on Friday. "Such 'in-China-for-China' investments are likely to continue because of China's expected market growth."

Still, American firms are now gloomier about their prospects in China than before. That's as US-China relations, competition with Chinese companies, and international travel restrictions were the three main challenges that they identified for businesses.

For instance, "most respondents expressed some level of concern with China's policies promoting domestic innovation and manufacturing", the USBC reported.

Such policies were cited as the chief example of protectionist behaviour in the Chinese market by 44 per cent of respondents, ahead of difficulties such as negative media coverage (39 per cent), and licensing and regulatory approvals (37 per cent).

In the wake of China's push for domestic tech innovation, 38 per cent of US businesses said their operations had been negatively affected, up from 12 per cent in 2019.

The respondents pointed to issues such as Chinese customers actively shifting towards domestic or non-American products and services; more competition from Chinese players that had not been competitive before; and limited access to certain sectors.

As such, 59 per cent of respondents told the USBC that they were less optimistic about the Chinese business climate than they had been three years prior.

The share of businesses naming China as their top priority market fell to a decade low of 10 per cent, while the share of businesses that put China among the top five markets for overall company strategy similarly shrank, to 64 per cent.

"Geopolitical and policy challenges are dampening optimism about China's business environment, and US companies are now prioritising China less," the USBC reported.

Some 83 per cent of companies did not reduce investments in China over the past year, while 87 per cent did not move any part of their supply chains out of China in that time.

Meanwhile, 95 per cent of respondents said their China operations were profitable in the last 12 months, with 64 per cent also reporting revenue growth.

"While most companies are not moving their business or supply chains out of China, these challenges raise questions about their future competitiveness in China, particularly if perception challenges intensify and the policy environment deteriorates further," the USBC said of these findings.

The council's member survey was held in June and polled 107 firms operating in China.