US companies see record-low profits in China amid geopolitical tensions and slow growth, report says
HONG KONG — US companies in China post record low profits as business confidence hits historic low amid Tensions between the US and China and a slowing Chinese economyaccording to a report published Thursday by an American business association.
Of the 306 companies surveyed, a whopping 66% were profitable in 2023, a record low percentage, according to the China business report published by the American Chamber of Commerce in Shanghai.
The report also found that only 47% of respondents were optimistic about their business prospects in China over the next five years, the lowest percentage in the survey’s more than 20-year history.
Beijing and Washington have clashed in recent years over issues such as trade and manufacturing, but also China’s claims in the South China Sea.
China is also struggling with a slowing domestic economy, with weak consumer demand and the deflationary pressures that persist even after COVID.
The report found that geopolitical tensions between the two countries pose the biggest challenge to doing business in China.
“It’s about the balance between risk and reward,” Eric Zheng, president of AmCham Shanghai, said at a press conference ahead of the report’s release.
“The perceived risks of doing business in China have increased in recent years, but at the same time the market is slowing, with weak demand and overcapacity,” he said.
Many companies are now shifting their investments to other regions such as Vietnam, Malaysia and South Asia, Zheng said.
AmCham’s report found that as many as 25% of companies surveyed have scaled back their investments in China in 2023, mainly due to concerns about slowing growth in China.
While just over half of US companies expect their revenue to increase from last year, only 37% expect growth in China to outpace global growth over the next three to five years.
The AmCham report came out a day after the European Chamber of Commerce in China a report published with similar sentiments about the growing risks of doing business in China. The report highlighted a lack of implementation of promised reforms and an increasingly politicized business environment.
The European Chamber’s report found that for some European companies the risks of investing in China were outweighing the returns.
“We are concerned that a tipping point has now been reached and that is why we call on the Chinese government to take action to turn the tide,” Jens Eskelund, the president of the European Chamber, said at a press conference on Wednesday.
“China is no longer a top priority, but increasingly a top three or top five destination,” he said. “We believe its relative attractiveness as a location will continue to decline unless we address some of these concerns.”
The European business organisation called on China to prioritise economic growth and reform, and to boost investor confidence by creating equal opportunities for all companies in the country.