Investment budgets have shrunk dramatically in southern China for the first time in four years as companies struggle to stay afloat in the worldwide financial crisis, a key business group revealed in an annual report yesterday. The American Chamber of Commerce in South China's fourth annual report said businesses had cut budgets for this year by almost 60 per cent and plans for the next three years by 40 per cent compared with outlooks reported last year. It said the percentage of companies that were profitable but not meeting budget expectations rose almost 20 per cent. The conclusions were based on a chamber survey in December and January of 551 companies from the United States, Hong Kong, the European Union, the mainland, and other regions operating in southern China. AmCham president Harley Seyedin said that more than half of the participants indicated 'a significant negative perceived effect of the economic slowdown in China and abroad on their operations'. 'But it is also good to see they are not leaving,' Mr Seyedin said, referring to data that the participants still planned to invest almost US$6.5 billion in the coming year and US$11 billion over the next three years. 'Companies simply do not invest billions of dollars in a market devoid of promise.' Nevertheless, there was 'a slow but steady decrease' in confidence in the business environment, down from 91.5 per cent in 2007 to 85.2 per cent this year, he said. But the financial meltdown was not the only factor holding back commercial development in southern China. For the fourth consecutive year, 'regulatory changes by the Chinese government' were named as the greatest challenge now and in the coming three years. Mr Seyedin said he saw the changes as being the primary reported concern and potential setback for companies today and in the future. For example, he said, Beijing introduced 18 rules related to tax equalisation last year, but the affected firms had less than 30 days to make the necessary compliance changes. On the 30th anniversary of the mainland's reform and opening up, the report said there had been a gradual erosion of the policies that had successfully promoted foreign investment in the past.