SINGAPORE (Feb 26): Despite ongoing trade tensions between the US and China, the Asian economic giant remains to be a high priority market for most companies, although many seem to be tempering their investment plans.
In addition, overall outlook on the China market has also shifted to cautious pessimism from cautious optimism, as many longstanding concerns take centrestage. Survey results also suggest that the full impact of the trade tariffs has yet to be felt, with some companies maintaining a “wait and see” attitude.
The findings were part of the results from a new survey – 2019 China Business Climate Survey Report – released by the American Chamber of Commerce in China (AmCham China) in partnership with Deloitte.
The survey also showed that most American companies in China continue to see their revenues grow, albeit softer financial performance compared to previous years. As compared to the lows of 2015, companies are still experiencing modest growth.
Overall, about 69% of companies in China were profitable in 2018, a slight decline from 73% in 2017. The service sector topped the charts with the greatest increase in revenues, while resources and industrial (R&I) industry members saw a sharp drop in profitability.
Nonetheless, China remains to be an important market, with more than 80% of member companies expecting positive industry growth in 2019, though more than half expect their industry to grow at no more than 5%, below the Chinese government’s forecasted GDP growth rate for 2019 of 6.3%.
Member companies believe that the US-China relationship is as important for their success in China, but about three-quarters expect bilateral relations to deteriorate or stay the same in 2019.
According to the survey, businesses find “bilateral tensions” the top challenge, regardless of sector, followed by “rising labour costs” and “inconsistent regulations and unclear laws and enforcement”. A majority 65% of members also said that trade tensions are influencing their longer-term business strategies, and nearly a quarter are delaying additional investments in China.
About one third (32%) of respondents expect their investment to slow this year, as compared to 26% in the previous year.
Companies also find that market access restrictions and lack of regulatory transparency continue are significant challenges. This is more prevalent in the technology and other R&D-intensive industries, as 73% of surveyed companies said market access restrictions inhibit their operations.
About half of the members also said that they would consider increasing their investments in China if its markets were as open as the US.
Many have also reported that they limit China investment because of Intellectual Protection (IP) concerns alone, but they also acknowledge China’s efforts to improve its IP rights laws and enforcement.
On managing the US-China trade tensions, Kevin Li, a Deloitte partner in Risk Advisory, says, “There are both short-term issues, imbalances and market access, and long-term ones, such as the possible spill-over effect of China’s industrial policies, and the two need to be addressed separately.”
“Finding a comprehensive and enduring resolution to the current trade frictions is critical to create a more positive, predictable environment for companies, which in turn will benefit the citizens of both countries, and indeed the world,” adds Li.
