China market ‘not top priority’ for investment as foreign firms pessimistic about prospects

American Chamber of Commerce poll respondents complain of protectionism and rising costs

PUBLISHED : Wednesday, 18 January, 2017, 9:03am
UPDATED : Wednesday, 18 January, 2017, 11:19pm

Foreign businesses find it hard to expand in China because of protectionism and rising costs, and many no longer feel welcome in the country, according to an annual survey on the mainland.

The survey by the American Chamber of Commerce in China comes just days before Donald Trump’s inauguration as the 45th US president. Trump has been wooing US factories to return home and threatening punitive measures against imports from China.

Rising protectionism and higher costs are discouraging foreign investment in China, and there are concerns about Sino-US ties, according to the survey. The chamber sent a questionnaire to its 849 member companies from the US, Europe, Australia and Asia. Of those, 522 responded – a record high.

Eighty per cent of the respondents said their margins in China were “less than or only equal to” their global average, and an equal proportion of respondents said they “feel foreign companies are less welcome in China than in the past”, and more than 60 per cent said they had no confidence in Beijing’s promises of opening China’s market further.

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As a result, a growing number of foreign businesses were “de-prioritising” China as a target for investment expansion, the chamber said.

“For many years, more than three-quarters of survey respondents said that China was among their top three priority markets for investment. But the number saying China is a top priority has been dropping since 2012, and reached a new low of 56 per cent,” the survey said.

“Seems that China has gone backwards… more regulations, taxes, and local company market share protectionism,” the survey quoted an executive in the financial services sector as saying.

It also quoted an official with an agricultural company who said: “A regulation was postponed right before its enforcement as the local companies were not ready yet. It … put multinational companies who followed the regulation in a disadvantaged position.”

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The survey found that about a third of companies saw the investment environment in China as deteriorating, with only 24 per cent saying it is improving, the least optimistic outlook since 2011.

And only a tenth of the polled businesses planned to expand by more than 10 per cent – the smallest proportion in the survey’s history.

China’s slowing economic growth, rising labour costs and intrusive governments are quickly eroding its advantages as an ideal place to make things or explore new businesses. This month alone, McDonald’s said it had agreed to sell a controlling stake in its China business, and Seagate, the world’s largest hard disk producer, said it would shut down its Suzhou factory.

Meanwhile, Trump has pledged to cut taxes to attract manufacturing flows back to the US. He has also threatened to launch a “border tax” and pressured US manufacturing giants to scrap their plans for overseas production in a bid to bring jobs back home.

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“While member companies believe more strongly than ever in the importance of the bilateral [relationship], few seem to expect the relationship to improve,” the survey said. “About half expect the relationship to stay the same, and one-third expect that it will deteriorate.”

The chamber said the best way for Beijing to attract more investment would be to improve the transparency, predictability and fairness of its regulatory environment.

China’s strict internet controls, data security requirements and intellectual property theft were among other concerns for foreign businesses in China. In particular, more than half of the respondents said data security risks were greater in China than in other markets.