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US firms in China less optimistic about 2019

Source: Investing & Living in Phnom Penh   Published: 2/26/2019 8:36:35 PM   Clicked: 123

In the face of declining profitability and long-standing issues such as inconsistent regulations, American firms in China have tempered their growth and investment outlooks for 2019, a new report has said.

Business optimism of these firms has also declined across the board, with growing concerns about cost and United States-China tensions, said the American Chamber of Commerce in China (Amcham).

In its annual China Business Climate Survey report released on Tuesday (Feb 26), Amcham noted that 30 per cent of the 314 members surveyed said overall profitability declined in 2018 - the worst performance since 2015, when China experienced a stock market sell-off.

More than half of the respondents also forecast that their respective industries would grow by 5 per cent or less this year. This is a more conservative outlook than China's official economic target this year of 6 to 6.5 per cent, noted Mr Kevin Li, a partner in risk advisory at audit firm Deloitte, which helped prepare the report.

Two-thirds of respondents also said US-China trade tensions have affected longer-term business decisions, and over a quarter are delaying or cancelling additional investments in China.

Despite the pessimism, Amcham said China remains an important market for US businesses, with a majority of those surveyed saying the growing affluence of China's middle class remains a key opportunity. Members also said China's investment environment had showed modest improvement, Amcham China chairman Tim Stratford said.

Even so, long-standing issues such as inconsistent regulatory interpretation and unclear laws and enforcement continue to be the top challenge for US firms in China, alongside the new problem of tension with the US, said Amcham China president Alan Beebe.

Mr Beebe noted that local and provincial governments have "a fair amount of latitude" when it comes to implementing new policies and laws enacted by Beijing.

"There may be what we refer to as 'window guidance': where there is a written law or regulation, but verbally, there may be additional points that are communicated to a company in order to receive a particular approval," he said.

Respondents had ranked improved regulatory transparency and predictability as the top factor in whether to invest further in China, ahead of better intellectual protection and industrial policies that favour Chinese firms.

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Despite China's efforts in the past year to open up more parts of its market, Mr Beebe said lack of access is still a significant inhibitor to operations on the mainland, with 73 per cent of respondents in the technology and other research and development-intensive sectors citing market restrictions as their top concern.

"Members indicated that (market access) was a key area that they would like the US government to advocate, which is a reciprocal investment environment whereby US companies would enjoy the same level of market access in China as Chinese companies enjoy in the US," said Mr Beebe.

Mr Stratford agreed, noting that Chinese reforms often took place in sectors where domestic firms were already dominant - such as in automobiles and e-payments - rather than cutting edge industries where US and Chinese firms are still competing head-to-head.

And while a third of respondents said that tit-for-tat tariffs have started to cause pain, more than half of respondents in a flash survey said they want tariffs to remain place while trade talks continue, with the hope that this will be motivation for both sides to "push the ball across the goal line and finish the job", said Mr Stratford.

The Chinese Foreign Ministry said at a regular press conference on Tuesday that the seventh round of trade consultations that concluded last weekend "had made new progress", and that both sides were working towards reaching "a mutually beneficial and win-win conclusion as soon as possible".

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