Tensions between Beijing and Washington are the biggest worry for US companies in China, report says

Simmering tensions between Beijing and Washington remain the top worry for American companies operating in China, according to a report by the American Chamber of Commerce in China released Tuesday.

The survey of U.S. companies said inconsistent and unclear policies and enforcement, rising labor costs and data security issues were other top concerns. It also said that, despite the insistence of Chinese leaders that Beijing welcomes foreign businesses, many still are hindered from free competition.

"The Chinese government has stated that it encourages foreign direct investment, but many of our members continue to encounter barriers to investment and operations including policies that discriminate against them and public relations campaigns that create suspicion of foreigners," the report said.

The report welcomed an improvement in relations in 2023 that was capped by summit meetings of Chinese leader Xi Jinping and President Joe Biden, but said the U.S. presidential election in November was "looming large" over the future business environment.

It's unclear what ramifications a victory for either Biden or former President Donald Trump might have for relations.

But Trump could deepen a trade war he started during his first term. His tough rhetoric on China and isolationist approach to foreign policy could ramp up uncertainties.

More recently, U.S. Treasury Secretary Janet Yellen visited Beijing, where she raised concerns that potential overcapacity in Chinese industries — such as electric vehicles, steel making and solar panels — might crowd out U.S. and other foreign manufacturers.

The fact that such visits are taking place shows "that on difficult issues, the two governments are talking and they're able to do so in a way that's not acrimonious. So that was very positive," said the chamber's chair, Sean Stein.

The Chamber sees high-level exchanges and communication between the two sides as a top priority, the report said.

American businesses are frustrated by slow progress on promises by China to level the playing field between foreign and Chinese companies, the report said. Meanwhile, heightened U.S. export controls and other restrictions have raised the costs of doing business.

"So the end result is companies are getting squeezed between the two governments, and on the regulatory front, what we're seeing is it's not getting easier to do business in China; it's getting harder," Stein said.

American companies operating in China saw improved profits last year, though slightly less than half expect to be profitable in 2024.

Still, many members of the American Chamber said they were more optimistic about growth of China's own economy.

Among its many recommendations the report urged China to create and implement "transparent and practical economic policies which treat domestic and foreign entities equally."

Referring to concerns that business people are at risk of being caught up in accusations they have violated China's national security, it also appealed to China's leaders to clarify and narrow the scope of the country's anti-espionage law to prevent it from interfering with normal business operations.

Such requests follow repeated raids on foreign companies that Chinese authorities say were conducted on national security grounds. Raids on consulting companies also tend to hinder foreign companies from assessing the business environment, leaving less willing to invest, said Lester Ross, a co-chair of the chamber's policy committee.

The report also had recommendations for the U.S. side, including providing clear visa policies for Chinese students to show they will be welcomed. Similarly, American students should be encouraged to study in China, the report said.

It also called on U.S. officials to avoid resorting to unilateral controls that may be ineffective and fail to meet goals for national security and foreign policy. Washington should engage with Chinese companies to allow them to address export control concerns such as military use of civilian technologies before the companies are subjected to sanctions, it said.

The 617-page bilingual report provided hundreds of recommendations spanning a wide variety of industries, from sports and online streaming to occupational safety issues and rural traffic management.

American companies generally are not planning to move supply chains out of China given how large and important it is as a market of 1.4 billion people. But their willingness to increase investments there and make it their strategic focus has been decreasing as its advantages diminish, the report said.