U.S. companies operating in China are more worried about strains in the relationship between the two countries than they are about regulatory transparency and intellectual property issues, as 71% of U.S. companies polled in a survey by the American Chamber of Commerce in Shanghai said geopolitical tensions are a significant worry for their business executives in China. The 2021 China Business Report was presented by PwC Partner Jeff Yuan at the PwC Innovation Center in Shanghai.
“Improved U.S.-China relations is something all of our members are really hoping for, and that’s really what would smooth the way for greater growth,” said Ker Gibbs, AmCham Shanghai President. In its survey, 55% of the respondents agreed that improved bilateral relations will benefit their industry over the next three to five years. The political tensions and talk of a decoupling of the countries’ technology sectors weighed heavily on Chamber members engaged in electronics, with 90% of them saying the issue will be a top challenge in the next three to five years, according to the 2021 China Business Report.
For some companies, even though the tensions haven’t caused them to divert current investments out of China, it is a negative factor when considering further market expansion, the report said. Gibbs noted that there is no mass movement among companies to leave China or to move production entirely out. There is a real reluctance to decouple from China as a production base because of the sophistication of the manufacturing ecosystem in China. Gibbs made similar points in a recent interview with Global Trade Talks, a podcast by law firm Crowell & Moring. “Everyone’s on a heightened state of alert,” he said in the podcast. “It is becoming more difficult to navigate with this sort of narrowing of space in which to operate,” said Gibbs, referring to export controls introduced by the U.S. “We’ve got sanctions on the U.S. side, and then we’ve got counter-sanctions on the Chinese side. So the space to navigate is becoming more narrow, and remaining compliant in both countries is more challenging.”
In this year’s survey, intellectual property – an issue raised over the years by foreign companies – did not make it into the top concerns. As for China’s regulatory environment, the report shows that it continues to improve, particularly in areas such as companies’ ability to obtain licenses. “China is not a perfect place for IP protection, but if we look at the trends over the last five years, what we do see is continued improvement,” Don Williams, Partner at law firm Hogan Lovells International, told the webinar. China has set up special IP courts in Guangzhou, Beijing and Shanghai, and on average, foreign companies win almost as often as Chinese companies do in these courts, which is “a good sign” and reflects the improvements, Williams said. For U.S. businesses, it is the Chinese growing middle class and the buying power of consumers that are providing tail winds, said Gibbs. “From a brand point of view, we still have an adequate reservoir of goodwill in China,” he said. “The Chinese people in general still have favorable perception toward our brands.” But he noted that “it’s not an unlimited reservoir; it has started to drain”.
In contrast to the notion that U.S. companies’ China operations take away U.S. jobs, the report found a 4.6 percentage-point increase in the number of companies reporting that their China operations added to their U.S. employment and operations, rising to 28.6%. “It is clear that there are a large number of jobs in the United States that are supporting the growth in business in China,” said Gibbs. He said the Chamber will work to communicate the notion that U.S. businesses in China can translate into jobs in the U.S., so that the U.S. government and the people can “see the overall relationship in the larger context of the benefits of this relationship that do flow back to the U.S. and do flow back to the American workers”, the China Daily reports.
AmCham Shanghai noted on its website a five-year optimism rebound as 77.9% of companies described themselves as either optimistic or slightly optimistic about the five-year business outlook, as well as surprisingly strong 2020 profits with 77.1% of respondents reporting profits in 2020, in line with the past several years, but higher than many expected. More than 82.2% of companies projected higher revenues in 2021 than in 2020, a return to revenue growth levels last seen before the worst days of the U.S.-China trade war. In 2021, the majority of companies (59.5%) reported increased investment compared to 2020, up 30.9 percentage points, and near 2018’s 62%. Of manufacturers producing in China, 72% had no plans to move any production out of China in the next three years. Of the remaining 28% that plan to move any production, only two companies (1.6%) will move all production in the next three years. No companies were relocating their production from China to the U.S.
The 2021 China Business Report is only available to members of AmCham Shanghai at the AmCham Shanghai website.
