One fifth of US firms in Shanghai redirecting investments away from China, says AmCham survey

PUBLISHED : Thursday, 13 July, 2017, 9:01am
UPDATED : Thursday, 13 July, 2017, 10:20pm

One in five American businesses in Shanghai indicated in a survey that they are redirecting investments planned for China to other destinations, such as Southeast Asia, amid higher costs, fiercer domestic competition and a shortage of skilled workers.

According to the American Chamber of Commerce in Shanghai, the majority of its 400 survey respondents believe that the mainland government still favours local companies over foreign businesses.

The finding by the US business lobbying group added to evidence that the world’s second-largest economy is increasingly having difficulties attracting foreign investment despite the government’s efforts to widen market access and facilitate business operations for overseas companies.

About 84 respondents, or 20 per cent of the total participating in the chamber’s annual survey, said that they would redirect investment outside the mainland.

It was the first time figures about relocation plans have been published by the chamber.

Among the 84 companies that had plans to relocate – which included firms in the sectors of logistics, real estate, electronics, agriculture and chemicals – 29.4 per cent said they would redirect investment to Southeast Asia. The next most favourable location for redirected investment was the US (21.8 per cent) followed by South Asia (17.6 per cent), which includes India and Pakistan.

The original reasons why those companies wanted to locate [in China] have changed
Ker Gibbs, AmCham Shanghai chairman

“The dynamic of businesses is changing the labour costs,” said Ker Gibbs, chairman of the AmCham in Shanghai. “The original reasons why those companies wanted to locate [in China] have changed.”

In Shanghai, average wage income for employees jumped 9.5 per cent to 6,500 yuan (US$955) a month in 2016, according to the city’s labour authorities.

The central government’s protection of state-owned businesses and bias against foreign investors remain a major concern for American firms, with 60 per cent of the survey respondents believing China’s regulatory environment lacks transparency.

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“Despite improvements in revenue and profitability, member companies are demonstrating a greater level of caution about investment in China,” the chamber said in its report.

The number of companies reporting China as their number one investment priority globally declined to 23.6 per cent, a drop of 5.4 percentage points compared to a year ago.

There has been mounting speculation that US President Donald Trump’s new policies to discourage American businesses’ overseas investment would result in a flight of funds back to the US from China.

However, Kenneth Jarrett, president of AmCham in Shanghai, said he saw only a tiny shift in terms of plans by American businesses to redirect investments from China to the US, citing costs and competition as the main reasons behind their intentions to relocate.

Rising costs were cited by 93 per cent of respondents as a hindrance, the survey showed.

Internet censorship was also highlighted by survey respondents as a key factor that hampered their business development in China.

The chamber said 76.4 per cent of service firms complained of Beijing’s restrictions on internet connectivity, a result of tightened censorship.