90%-plus US firms make profits in China: Report

Updated: 2013-10-10 23:55

By MICHAEL BARRIS in New York (China Daily)

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More than 90 percent of survey respondents reported that their China operations are profitable, the highest percentage reported since the United States China Business Council began surveying its members, said a report released on Thursday by the Washington-based nonprofit organization.

USCBC said that while slowing economic growth, rising costs and "persistent operating challenges" continue to "moderate corporate optimism toward the China market", companies are "not pessimistic".

Still, the report said, fewer companies in this year's survey said that their profit margins in China are better than that of their global rates and fewer companies reported double-digit revenue increases compared with previous years.

While a growing number of companies place China as one of the top five global market priorities, the number of companies that cited China as the top priority declined, according to the survey. Just over half of survey respondents said they plan to commit more resources to China in the next year, down from 67 percent in the 2012 survey, the USCBC said.

The USCBC, which represents 220 US companies selling goods and services in China, surveys its member companies each year to gauge the business climate in China. The report said that as China's economy has slowed in the past year, "many companies face business and market access issues in a market that for the past five years has been a rare bright spot in a difficult global downturn".

Although it remains a magnet for foreign investment, China's rising labor costs, crowded marketplace and "challenging" business-approval processes are bumping the country down the priority list for US investors, it said.

The report — which comes a week after a free trade zone in Shanghai went into operation, ostensibly allowing foreign investment into a wider range of industries — urged China to follow what it called the US practice of equal treatment for both homegrown companies and US-incorporated foreign companies.

USCBC said problems with licensing "occur at the central, provincial and local levels and affect almost every aspect of doing business in China".

Meanwhile, US and Chinese regulators hold divergent views on investment and market access restrictions which "continue to be a priority concern for US companies operating in China", according to the survey.

The report said China's value for US investors would be even larger without market barriers.

Despite an economic slowdown tied to the nation's embrace of domestic consumption and movement away from investment and exports, China attracted $8.38 billion of foreign direct investment in August, up 0.62 percent from a year earlier, the Ministry of Commerce said last month. The figure was below the previous month's growth rate. In the first eight months of this year, China attracted $79.8 billion of FDI, up 6.4 percent from the same period in 2012, but below the economy's overall growth rate.

Analysts said China still offers advantages to investors despite the issues identified in the report, but one analyst called the survey "biased from an American point of view".

Ann Lee, the author of the book What the US Can Learn from China, said corporate discrimination abounds in the US but the perpetrators are "just more discreet about it", for instance, in "awarding government contracts that are not even open to bidding".

China's slip in optimism, she said, "may be nothing more than American companies becoming less naive about doing business in China rather than an actual deterioration in the business environment in the nation; if foreign companies don't like the rising labor costs in China, then they can move their operations elsewhere".

Lee predicted that market barriers in China will "likely decrease" over time. "Today they need them to protect their infant industries that are not yet competitive," she said.

Sophii Weng, an economist with Standard Chartered Bank, said that despite China's rising labor costs, it will remain a "target market for many US companies, thanks to its massive population of middle-level skilled workers as well as a large supply network that very few competitors can match".

"Red tape has been a particular barrier for foreign investors" in China, Weng said. If it were to streamline its administrative processes, "US companies might be more inclined to invest" there, she said.