Shanghai named best city for US businesses
US companies have identified Shanghai as China’s most attractive city for foreign businesses despite a number of them experiencing lower revenue growths due to China’s economic slowdown, according to survey results in the American Chamber of Commerce Shanghai’s 201516 China Business Report.
The report revealed that 70 percent of the 406 companies surveyed have plans to make investments in Shanghai.
The report, which is based on the results of AmCham Shanghai’s 2015 China Business Climate Survey, is of the longest running ones focusing on US businesses in China. It poses questions about company performances, challenges and strategy, future risk outlooks, business disruption and trends.
US companies in China have generally been faced with slower developments as only 61 percent of them in Shanghai reported revenue growth for 2015. The number of US companies in China with declining revenues more than doubled in 2015, rising from 11 to 23 percent. Seventy six percent of the companies estimate that they will experience revenue growth in 2016, but most expect it to be below 10 percent.
“The year of 2015 was a challenging year for businesses in China. American companies need to adjust to this new setting but also to the opportunities that remain, such as in service sector growth,” said Ken Jarrett, president of AmCham Shanghai.
Sixty-four percent of the companies say that a drop in China’s GDP rate and the slowdown of economy will moderately or significantly affect their businesses, while only 8 percent say that it will have no impact. The report also showed that costs, domestic competition and the economic slowdown are seen as the key risks for 2016.
Revenue growth and investment levels in the manufacturing sector are slowing the most dramatically. Manufacturers are also sending mixed signals about the slowdown — 39 percent of them identify slower market growth as the top risk factor in expanding their businesses in China, while 18 percent believe that overcapacity caused by market overheating was the main culprit.
“The manufacturing sector in China is not doing well and is under significant challenges. We have to squeeze the margin as our prices are declining rather than increasing,” said Cecilia Ho, president of International Paper Investment (Shanghai) Co Ltd.
With regarding to local competition, 78 percent of the American companies surveyed say their businesses have faced increased competition from Chinese privateowned enterprises, up from the 67 percent in 2014.
“More local companies are hiring foreign creative to give themselves a multinational dimension and raise their level of sophistication. This is something multinational companies have to be aware of,” said Paul Lin, chief strategy officer of Possible, a creative digital agency.
On the other hand, companies in the retail and service sectors are among those who are optimistic about the future. Retail has remained the most bullish sector, with 91 percent of companies proposing investment increases for 2016, while 85 percent of companies in the service sector are looking to do the same.
“Overall, the survey results tell the story of China’s transformation from an industrial export-based economy to an increasingly service-oriented one. This is a trend we expect will act as a beacon to attract more American firms into the market,” said Ron Klein, principal at PwC Strategy&.
Embracing e-commerce and digital trends are the two biggest priorities among US companies for 2016, with 47 percent saying they will increase their investments in these areas. However, overall investment in digital initiatives and online channel developments in China remains low.