US Companies Acknowledge China's Continued Significance as a Key Market, but Optimism Wanes for Enhanced Opportunities

27 Sep, 2023

US Companies Acknowledge China's Continued Significance as a Key Market, but Optimism Wanes for Enhanced Opportunities

Optimism among US companies regarding their prospects in the Chinese market has hit an all-time low for the second consecutive year, according to a recent survey conducted by the US-China Business Council (USCBC). Despite this, China remains a top-five priority market for 74% of the surveyed companies. The survey also highlights that US-China tensions have now overtaken COVID-19 shutdowns as the primary challenge faced by American businesses operating in China.

Of the 117 respondents to the survey, 84% reported experiencing adverse effects on their businesses, including delayed investments, lost sales, and disrupted supply chains. USCBC President Craig Allen emphasized that the future business climate would largely depend on policy choices made by both governments.

Different industries are experiencing varying pressures, with sectors like food, energy, and consumer goods performing well, while the technology sector faces more complex challenges. However, the survey does not provide industry-specific data.

The USCBC, comprising 276 members, including influential companies like Nike and Amazon, conducted the survey between June and July, before increased economic diplomacy efforts between the two governments. Despite China's relaxation of domestic COVID-19 restrictions, only 19% of respondents believed that the business environment had improved over the past year.

Only 2% of respondents expressed greater optimism about the current business climate in China compared to three years ago, with 83% reporting decreased optimism. China's post-Covid economic rebound fell short of expectations, with growth at 6.3% in the second quarter of 2023, below the forecasted 7.3%.

Confidence among US firms regarding their five-year outlook in China dropped from 75% to just under 50% compared to five years ago. Additionally, 28% of respondents expressed pessimism, a 7% increase from the previous year, with more than half attributing their outlook to geopolitical concerns and China's regulatory and policy environment.

China's data policies have become a significant concern, ranking second on the list of challenges, up from fourth place in the previous year's survey. Beijing's efforts to regulate data and protect personal information have created uncertainty for businesses.

China's industrial policy's impact on the competitive landscape was another major concern, with 90% of respondents believing they would lose market share within five years. Worries regarding export controls, sanctions, and limitations on investments have also seen a rise.

Despite these challenges, only 23% of respondents had relocated or planned to relocate certain operations outside China, though this marked an increase from the previous year. The majority of companies were in China primarily to access and serve the Chinese market, rather than for manufacturing purposes.

While 19% of companies identified China as their top-priority market globally, another third ranked it among their top three priorities. However, 9% of respondents stated that China was not a priority market for them.

The USCBC noted some positive signals from Beijing, such as the State Council's "24 measures" published in August, which aim to grant national treatment to foreign enterprises in government procurement and standard-setting initiatives. Despite challenges, 80% of surveyed firms remained profitable, although this marked a decline from the previous year. Many companies were adopting a "wait-and-see" approach, delaying resource commitments over the next 12 months. While some planned to accelerate investments in China, the number was lower compared to five years ago, with an increasing number of companies considering curtailing certain commitments. Ultimately, many companies still recognize China's long-term opportunities and the importance of being present in this vital market.