US firms’ confidence in China falls to record low

“It is unclear if this pause in future capacity growth is another temporary blip or one point in a longer trend.” Craig Allen

NEW YORK: American firms’ optimism about China has fallen to a record low, with President Xi Jinping’s zero-covid policy causing more than half of companies to delay or cancel investment, a new survey from an US business group shows.

Pandemic-related shutdowns pose an even bigger headache to US companies in China than worsening relations between Beijing and Washington, according to a survey by the Us-china Business Council (USCBC).

Only 51% of respondents expressed some degree of optimism about their five-year business outlook in the world’s second-largest economy, well down from 69% last year.

“The looming possibility that companies will again be forced to partially halt operations due to lockdowns and the impacts of local controls on consumer demand have undermined confidence in the business environment,” according to the report, which was released Monday US time.

Some 96% of companies were negatively impacted by China’s pandemic control measures, with more than half pausing, delaying or canceling altogether their investment plans in the country, according to the council, a private organisation of over 270 American companies.

New investment by US companies in China is expected to slow in 2023 as a result of the virus controls and other Chinese policies, including around data and cybersecurity, increasing difficulty in selling to government, and intellectual property protection issues, the report said.

Due to the Covid-19 control measures, 17% of firms said that investments worth over Us$50mil (Rm224.3mil) had been affected.

“It is unclear if this pause in future capacity growth is another temporary blip or one point in a longer trend,” USCBC president Craig Allen said in a statement.

In addition to long-standing concerns about China’s industrial policies which tend to disadvantage foreign companies, newer concerns such as geopolitical tensions or data security are becoming more prominent, Allen said, and this raises the specter of a tech decoupling which “would not be in anyone’s interest.”

Overseas companies have struggled to retain foreign staff already in China and to bring in new ones, the survey showed.

“Most Us-based executives have not been able to travel to China to see their business, employees and customers for two and a half years, further compounding concerns with market conditions,” the report added.

Meanwhile, onerous regulations have increased compliance costs of doing business, even as the country’s top leaders assert that China remains open to foreign business.

Almost 90% of the companies studied said their China operations were profitable last year, although that has almost certainly fallen this year.

In the first seven months of this year, profits of foreign industrial firms fell 14.5% from a year ago, a steeper decline than the 13.9% drop recorded through June.

“Geopolitical pressures are bleeding into the commercial realm, leaving companies – which depend on a stable and predictable trade environment – in increasingly challenging positions,” the report said.

“Chinese customers’ real and perceived concerns about ongoing access to US technology due to Us-china tensions continue to threaten US companies’ competitiveness in the market, an alarming trend that could be difficult to reverse.”

Allen is concerned that the economic relationship between the countries wasn’t getting the priority it deserved.

“At tense times like these, we should capitalize on any opportunity for stability,” he said, urging “both countries to build upon the hard-earned commercial progress achieved over the last several decades and address outstanding barriers to doing business in China.”