China is tougher turf for US firms

AmCham Shanghai finds smaller share of American companies profitable in China in 2012 but more optimistic about the mainland

PUBLISHED : Friday, 01 March, 2013, 12:00am
UPDATED : Friday, 01 March, 2013, 5:54am

The performance of US businesses in China declined for a second consecutive year in 2012 amid rising labour costs, tougher competition, and a slowing economy.

But, a record number of American businesses said they were optimistic about the outlook for China for the next five years.

According to a survey of 420 companies by the American Chamber of Commerce (AmCham) in Shanghai, 73 per cent of respondents were profitable last year, down from 78 per cent in 2011.

Playing down expectations for sustainable and rapid economic growth in China, AmCham Shanghai president Brenda Foster said: "Steadily rising costs, human resource constraints and an increasingly competitive business environment will be the rule rather than the exception in the years ahead."

Severe losses afflicted 5.1 per cent of the surveyed firms last year, up from 4 per cent in 2011.

Most of the business executives complained of China's opaque regulatory environment and bureaucracy, with 54 per cent of respondents saying a lack of transparency favoured domestic companies.

Beijing's calls to raise incomes for the underprivileged forced companies to give pay rises to their workers.

China's household income climbed about 10 per cent in 2012.

China is a tough place to do business, it always has been, and this year's survey results quantify that

"China is a tough place to do business, it always has been, and this year's survey results quantify that," said Kent Kedl, a managing director with boutique strategy consulting firm Control Risks. Kedl said home-grown companies were becoming stronger and better, intensifying competition.

China's economy grew 7.8 per cent last year, the slowest in 13 years as both domestic and multinational companies struggled to sustain their fast growth.

The chamber said 71 per cent of respondents reported a revenue increase last year, down from the 80 per cent in 2011.

But China, the world's second-largest economy, remains an investment priority for US businesses owing to the huge size of the market and its fast-growing consumer demand, the survey found.

One-fifth of the surveyed companies picked China as the top investment destination while 54 per cent rated it a top-three investment priority.

Ninety-one per cent of respondents said they were optimistic or slightly optimistic about the five-year outlook in China, compared to 86 per cent in 2011.

"Rising costs is a mature-market challenge," Kedl said. "Rising labour costs means consumers can buy more."

Less than 15 per cent of US companies reported moving or planning to move production out of China. About 74 per cent of companies said they would increase investment in China, the survey showed.

To support their operations in China, 59 per cent of companies were exporting finished goods or components to China from the US, aiding China's efforts to upgrade its industrial mix.