US firms in China unwilling to expand over regulatory concerns

[BEIJING] US businesses in China are hesitant about increasing investment due to rising regulatory uncertainties, pessimism over market access and economic growth concerns, according to a survey by the American Chamber of Commerce.

Some 40 per cent of the 353 respondents saw the regulatory environment as one of the driving factors of pessimism over doing business in China, up 16 percentage points from a year ago, according to a report released Tuesday (Mar 8). More than a third said they will lower investment due to policy uncertainties.

"China's regulatory and policy environment remains an obstacle to performance and creates uncertainty about investment decisions," the report said.

Beijing's sweeping regulatory crackdown on sectors from education to internet platforms triggered a sharp sell-off in Chinese stocks in 2021, although the campaign has taken a breather since late last year as growth concerns have mounted.

Over 80 per cent of the surveyed companies said increasing the transparency, predictability and fairness of the regulatory environment would encourage more investment, while 65 per cent recommended limiting the use of industrial policies that create barriers.

Less than half of the companies surveyed were confident in the government's commitment to further open the market to foreign investment in the coming 3 years, down from 61 per cent in the previous year, according to the survey, which was conducted between October and November in 2021.

Those optimistic about domestic market growth in the next 2 years declined to 64 per cent, from 75 per cent a year ago.

The respondents' outlook on US-China relations was also less rosy for 2022, with 24 per cent expecting ties to deteriorate, up from 19 per cent.

Some 42 per cent of the respondents said they planned to increase investment by 1 per cent to 10 per cent, while 29 per cent said they had no expansion plans.

One-third of respondents said China's regulatory actions are causing concern at their global headquarters.

Technology companies are worried about the impact of the Cybersecurity Law's implementation, and over 80 per cent of them believe the latest data localisation requirements will impact them negatively.

Some 15 per cent of the surveyed companies plan to reduce investment if travel restrictions don't improve within the next 6 months. BLOOMBERG