American businesses remain optimistic about the business climate in China even as economic realities temper growth prospects, according to the 2014 Business Climate Survey conducted by the American Chamber of Commerce in the People's Republic of China (AmCham China).
"This year's survey reflects the current realities of operating in China and the associated uncertainty, but also the optimism and confidence among AmCham China members that the country's leadership is set on reform and that foreign business has an important role in China's future," says AmCham China Chairman Gregory Gilligan. "This is clearly a period of transition for China, and AmCham's members are hopeful that this marks the start of a new era in China's development."
China in Transition
After years of meteoric growth, China's economy and the overall business environment are now more soberly assessed by AmCham China member companies. This year's survey shows that many companies are still profitable in China. However, costs and other challenges are rising and, despite solid optimism for the short-term business outlook, companies are increasingly cautious about future investments, as growth in revenue and profitability slows.
For the third year running, the percentage of companies reporting substantial revenue increases fell, outnumbered by those reporting slight increases or slight decreases. However, fewer than 20 percent describe the quality of China's investment environment as deteriorating, while more than 80 percent perceive the quality as improving or staying the same.
According to the survey, AmCham China members, like all private companies, face a number of fundamental challenges in doing business in China: rising labor costs, inconsistent or unclear laws and regulations, difficulties in obtaining reliable data and the influence of state-owned enterprises. Human resources continue to feature prominently among the top challenges, so this year our BCS devotes a separate chapter to this issue.
However, AmCham China members also face challenges that impact foreign business disproportionately. The survey shows that fewer respondents than ever believe that licenses are granted equally between foreign and Chinese companies; 68 percent of respondents still characterize IPR enforcement in China as ineffective, and 40 percent of respondents perceive that foreign companies are singled out in pricing and anticorruption campaigns.
Closely Watched New Questions
The Shanghai free trade zone and bilateral China-US investment treaty are important components of China's reform agenda and close to the hearts of our members. Uncertainty remains but AmCham members are watching closely, with 35% expecting a positive impact from the Shanghai free trade zone and 44% expecting the same from the bilateral investment treaty.
AmCham China members remain optimistic and look forward to playing an important role in China's future. Three-quarters of companies are optimistic or slightly optimistic about their two-year business outlook in China. AmCham is confident in the Chinese government's resolve to reform. "Many tough decisions remain for the country, but the most difficult decision, to embrace reform, has already been made," Gilligan said.