A majority of the US companies in China remained profitable last year despite trade friction between Beijing and Washington, and are committed to staying in the market that is too big to fail, a new survey has said.
About 92 percent of the 346 companies polled by the American Chamber of Commerce in Shanghai said they will remain in the Chinese market, according to the China Business Report 2020 released on Wednesday together with consultancy PwC.
Of the over 200 respondents that own or outsource manufacturing operations in China, only 3.7 percent said they are moving some production out of China to the United States, despite concerns about geopolitical tensions, tariffs or supply chain weakness due to the COVID-19 pandemic.
“Clearly it is a question of market size, growth rates and ease of doing business here,” Ker Gibbs, president of the AmCham Shanghai, told China Daily.
“Because most of our members are… making products and services within the China market and for the China market… so it is the market opportunity that is keeping them.”
The report found that 78.2 percent of the respondents made profit in China in 2019, marginally ahead of results seen in recent years. Among them, retailers were the biggest beneficiaries, with 85.4 percent reporting profits last year against only 69.7 percent in 2018.
A relatively big proportion of respondents, or 30 percent, reported their China revenue growth in 2019 was significantly higher than worldwide revenue growth, which represents a 6-percentage-point increase from 2018.
Also, the number of companies reporting China as a significant source of profits for their US headquarters jumped 9.4 percentage points to 32.1 percent.
“After an exceptionally weak first quarter due to COVID-19, we saw a strong rebound in the second-quarter China auto demand to near previous-year volumes. The forecast volumes for the third quarter are likely to exceed that of the whole of last year,” said an executive of a US auto parts supplier, who did not wish to be named.
Despite global uncertainties, some 32.3 percent of the US companies plan to add head count in China, with 38.7 percent saying they would maintain the head count.
Respondents also reported significant improvements on a variety of regulatory issues of concern, with member companies recording a drop of 9.6 percentage points in being encumbered by inefficient government bureaucracy.
There was also a drop of 7.5 percentage points in companies feeling restricted by limited local research and development and innovation capacity and a drop of 7.2 percentage points in those challenged by lack of talent and capabilities, the report said.
“Where members were positive, sentiment may have been boosted by policy reforms such as the Foreign Investment Law, which, while in its infancy, aims to promote more equal treatment for foreign and domestic companies, as well as offer greater protection of intellectual property rights,” said Mark Gilbraith, management consulting leader for PwC China.
The COVID-19 outbreak is also estimated to impact full-year revenue, with 78 percent estimating a negative impact.
But taking a longer-term toll is the rise in US-China tensions, with 71 percent of the respondents agreeing that the frictions will likely pose a challenge in the next three to five years.
Guo Yi, managing director and partner at consultancy Boston Consulting Group, said China is the driver of growth in the firm”s global business, while the international economy is facing challenges.
Despite the novel coronavirus epidemic, the China market still shows an abundance of vitality and growth, Guo said. He expressed confidence about China’s future development and said the Chinese market had the least risks.
Speaking at a seminar on foreign firms’ investment in Shenzhen, Guo said BCG opened a digital center for the Asia-Pacific market in Shenzhen last year. The center provides services to all major enterprises in the Guangdong-Hong Kong-Macao Greater Bay area. He said the area, in particular, has demonstrated its significance in the new wave of internationalization, adding that many foreign firms are evaluating how to expand their business in the area.