A recent survey shows that optimism among US businesses regarding their long-term prospects in China has fallen to its lowest point since records began in 1999, Reuters reports.
Political tensions, a slowing Chinese economy, and intense domestic competition have all contributed to the decline in confidence.
According to the American Chamber of Commerce in Shanghai (AmCham Shanghai), only 47% of US firms are optimistic about their five-year outlook in China. This represents a significant drop of five percentage points from the previous year and the weakest level of optimism ever recorded in the AmCham Shanghai Annual China Business Report.
The survey, published on Thursday, also highlighted a decrease in profitability among US firms operating in China, with only 66% reporting a profitable 2023. Allan Gabor, Chairman of AmCham Shanghai, attributed this trend to several factors, including weak domestic demand, deflationary pressures, and ongoing geopolitical concerns.
“The decline in profitability is a multifaceted issue… It involves domestic market conditions, economic deflation, and the broader geopolitical climate, which collectively impact business strategies and investment plans in China,” Gabor explained.
The survey, which polled 306 US companies across various industries, noted a 14% drop in US foreign direct investment into China, amounting to $163 billion in 2023. Geopolitical issues remain a significant challenge, particularly with heightened uncertainty surrounding US-China relations and upcoming US policy decisions, such as potential higher tariffs on Chinese products.
The US is expected to finalize its decision on additional tariffs for Chinese-made goods, including electric vehicles, semiconductors, and solar cells. Although these tariffs were initially set to take effect on August 1, they have been postponed twice. China has responded by urging the US to lift these tariffs and has threatened retaliatory measures.
The survey revealed that 66% of respondents view the bilateral relationship between the two nations as their biggest challenge, and 70% see it as a major impediment to China’s economic growth. Despite these challenges, there was a slight improvement in the perception of China’s regulatory environment, with 35% of businesses noting increased transparency. However, 60% of companies reported experiencing favoritism toward local firms.
The report also indicated that 40% of US companies are either redirecting or planning to redirect investments away from China, primarily towards Southeast Asia and India.
This decline in US business sentiment in China mirrors recent findings from the European Union Chamber of Commerce in China, which also highlighted that the difficulties of operating in China are increasingly overshadowing the potential benefits.
