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Frosty relations between Washington and Beijing have had a chilling effect on U.S. businesses in China


U.S. companies in China remain uncertain of their prospects in the country, due largely to tensions between Washington and Beijing and concerns over erratic Chinese policies.

That is according to the American Chamber of Commerce in China, which surveyed hundreds of American firms in China for its much-anticipated annual “China Business Climate Survey Report.”

More than half of members expect financial losses for 2023 — a worrying number that nonetheless represents slight improvement from last year.

The sole areas with notable confidence in profitability are the consumer and service sectors. Only consumer-sector businesses expected a significant rise in revenue compared with last year, which is surprising considering China’s difficulty of late in getting its citizens to spend on almost anything.

“‘[Geopolitical issues weighing on the minds of American business executives in China include] Beijing’s support for Moscow, repressive actions in Hong Kong and Xinjiang, bullying and aggression in the South China Sea and Taiwan Strait, and ongoing confrontations with a host of countries all around the Indo-Pacific region.’”

— James Zimmerman, former chairman, American Chamber of Commerce in China

“We’re probably seeing lots of such retail investors put their dwindling savings into bank accounts, of all places, as there really isn’t any other safe place to invest your money right now, considering the terrible real-estate market,” Doug Young, director of Hong Kong–based consultancy Bamboo Works, told MarketWatch.

However, most of the businesses surveyed plan limited or no new investments in 2024, prioritizing growing their core operations over expansion. The main reasons for this hesitancy to spend more money on their China operations are tense U.S.-China relations, regulatory inconsistencies and rising costs.

Over one-third feel less welcome in China, expressing doubts about market openness and concerns over unfair treatment in market access and regulatory enforcement. In tech and in R&D in particular there are struggles with cybersecurity and intellectual-property-rights issues.

But easily the foremost concern of nearly all these businesses was U.S.-China relations. A majority across business categories rated this touchy and fluctuating relationship as “extremely important” to their companies’ growth in China.

But other issues worried them, as well. The top concerns after the bilateral relationship are rising labor costs, concerns about data security, increasing competition from privately owned Chinese companies, inconsistent regulatory interpretations, and unclear laws and enforcement.

“China is indeed an attractive consumer market, but tensions [among] the U.S., EU and China have cooled the excitement of American and foreign business,” said James Zimmerman, a lawyer in Beijing who served four terms as chairman of the American Chamber of Commerce in China.

Indeed, Zimmerman said foreign businesses are rethinking whether to remain or expand in the China market as long as a host of geopolitical issues remain unresolved.

Those, he said, include “Beijing’s support for Moscow, repressive actions in Hong Kong and Xinjiang, bullying and aggression in the South China Sea and Taiwan Strait, and ongoing confrontations with a host of countries all around the Indo-Pacific region.

“For business, geopolitical tensions absolutely matter and should not be ignored,” Zimmerman told MarketWatch.

Understandably, with the semiconductor chip war in full swing, tech businesses, among all sectors, were the most concerned.

From the archives (May 2023): Nvidia CEO warns of ‘enormous damage’ if China chip war escalates

Also read (February 2023): There’s a real risk of World War 3.1, and the battleground will be microchips, strategist says

The tech industry, along with R&D, said it was being targeted with the most unfair treatment. This contrasted with the consumer industry, which reported improved and generally fair treatment.

Though it’s a slight increase from last year, a solid 57% of firms surveyed are either uncertain or lack confidence in China’s dedication to further opening its market to foreign investments.

Zimmerman voiced cautioned over what he sees as Beijing’s lack of vision for its path toward a more market-oriented economy.

“Foreign business has lost much faith in Beijing’s ability to manage the business environment and economy, especially with the postponement of the all-important Third Plenum and a failure to address downward trends in China’s economy such as the real property meltdown that remains in free fall.”

The plenum — an all-important conclave held every five years at which top Chinese leaders chart the course for the coming years — was, in 2023, postponed for the first time in three decades.

As for U.S. corporate talent coming to, or staying in, China, the percentage of qualified candidates who said they were willing to relocate to China was up slightly, even as concerns remained.

Top among them, again: bilateral tensions. But other issues included the slowing Chinese economy, the high cost of living, internet and media censorship, and health and safety concerns, likely related to pollution and the relative lack of access to medical care anywhere near Western standards.

With this mixed overview of China as a business environment, most firms are in a sort of holding pattern, keeping manufacturing at current levels and retaining roughly the same amount of talent as the previous year.

But there was an uptick — to 23% from 14% — of companies planning to move their operations and sourcing out of China.

Tanner Brown covers China for MarketWatch and Barron’s.

More Tanner Brown dispatches:

China prognostication is challenging. Witness 2023. And 2024 warning signs are flashing.

Walmart keeps head above water in China as local supermarkets eat themselves alive

U.S. businesses operating in China are confused and worried. Here’s why.

China’s economy is suffering, and consumers won’t open their wallets — except to see movies

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Biden aims to avoid conflict while competing with China, he tells Xi

With U.S.-China relations lacking, Biden and Xi pick the low-hanging fruit

Biden announces new restrictions on U.S. investments in China

Here are the chip companies that should benefit the most from the government’s massive incentives

U.S. companies will rely less on China and move manufacturing closer to home as globalization splinters, El-Erian says


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