Although business opportunities abound, companies doing business in China are getting cranky over unclear laws and other regulatory issues, according to a just-released China Business Climate Survey Report.
The survey included nearly 500 member companies of the American Chamber of Commerce in China (known as AmCham China) and was conducted with Bain & Co. And it found that one-fourth of respondents “has either moved capacity outside of China in the past three years, or is planning to move capacity.” As a result, workforce reductions in the country are expected.
“While industrial and resources and consumer companies most commonly cited countries in developing Asia as the region capacity was moved to, technology and other R&D intensive industries most frequently reported moving to the U.S. or NAFTA region,” the survey researchers said in their report. “Looking to 2016, even as 46 percent of companies expect to increase head count, more than 20 percent of companies are planning to decrease head count.”
AmCham China said a “majority of foreign companies [in China] remain optimistic on domestic market growth potential,” but added that “they feel less welcome and are increasingly frustrated by unclear laws, inconsistent regulatory interpretation and difficulty obtaining required licenses.” The survey showed that while China “remains a top investment priority for more than half of companies,” corporate revenues “and profitability came increasingly under pressure last year.”
AmCham China chairman James Zimmerman said that 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 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 chairman said.
Of those polled, 45 percent reported flat or a decrease in revenues in 2015 compared to 2014. “At the same time, the proportion of companies characterizing their business as financially profitable in 2015 fell to 64 percent — the lowest level in the last five years,”AmCham China said. “Financial performance differed significantly among industries. For example, nearly two-in-three services companies reported increased revenues, while nearly half of the industrial and resources companies reported declining revenues.”
The survey showed that China remains in the top three of investment priorities for 60 percent of the respondents. And for 25 percent of those polled, it is the number-one investment priority.
Regarding the regulatory environment, the business climate report noted that economic reforms in China, which include stricter enforcement of intellectual property rights, remains weak and/or inconsistent. “Respondents now cite inconsistent regulatory interpretation and unclear laws as their number-one business challenge,” the report stated. “Furthermore, difficulty obtaining required licenses is again among the top five challenges, and increased Chinese protectionism tied with a number of other items for the number six challenge. In all, more than three-quarters of respondents feel that foreign businesses are less welcome than before in China.”