China economy

Foreign firms less confident in China’s economy: American Chamber poll

More overseas businesses are cutting back investments, with some planning to move production elsewhere, American Chamber survey shows; almost half of all firms polled expect GDP growth this year to be less than 6.25pc

PUBLISHED : Wednesday, 20 January, 2016, 11:55am
UPDATED : Monday, 30 May, 2016, 5:09pm

Weaknesses in China’s economy have weighed on foreign firms, many of whom now plan to relocate their firms and reduce their investments in the country, according to a business climate survey.

The survey, released on Wednesday by the American Chamber of Commerce in China, showed that nearly one-third of some 500 member firms polled had no plans to expand investment in the country this year.

The proportion was “a higher percentage than during the financial crisis in 2009”, it said. Other firms would expand investment this year, but at a slower pace than in previous years.

READ MORE: China turns in lowest growth rate in 25 years at 6.9pc as Hong Kong, Shanghai markets rally amid hope of policies to stem slowdown

Market players and observers are becoming increasingly pessimistic as official data revealed on Tuesday that China’s economic growth had slowed to a 25-year low of 6.9 per cent in 2015.

The AmCham poll showed that 64 per cent of member firms still saw doing business in China as profitable – a five-year low.

Nearly half of member firms in the industrial and resources sectors reported falls in revenues.

About half of those polled expected the country’s gross domestic product to expand by less than 6.25 per cent in 2016 – much lower than the People’s Bank of China’s forecast of 6.8 per cent.

China’s gloomy economic outlook or better prospects in other countries were the main reasons companies were making plans to cut investment in the country, the survey found.

According to the poll, by the end of last year, one-quarter of respondents have already moved or were planning to relocate outside China. Among them, most chose to move to developing Asian countries such as India, Vietnam or Thailand, as well as North America.

While China remained one of the top three investment destinations for the AmCham firms polled, the proportion of firms that felt this way fell to 60 per cent in this year’s report compared with 80 per cent at its peak in 2012.

Some 77 per cent felt that foreign firms were less welcome in China than before.

“As China’s economic growth rate decelerates, this year’s report reflects that American businesses will need to revise their strategies to ensure profitable growth in China,” said James Zimmerman, the chamber’s chairman.

“In addition, our members report increasing concerns about transparency, predictability and fairness of the regulatory environment, as well as the extent to which they are allowed to participate in the ongoing reforms and serve China’s market.”

The survey also noted that the firms polled expected a high-quality bilateral investment treaty between China and the United States – essential for boosting the Chinese economy – to be ready by 2018 or earlier.

But the treaty was undergoing “a difficult negotiation”, AmCham vice-chairman Lester Ross said on Wednesday. “It involves substantial changes, particularly in China,” he said.

Ross also noted that foreign businesses were concerned about regulatory inconsistencies and hoped the Chinese government would “narrow the scope of regulatory variation”.