American Companies in China Are Cutting Expenses But Not Pulling Out

China’s growth slowdown is impacting American company financials and market sentiment, according to the US-China Business Council’s (USCBC) annual Member Survey report, which captures how American companies view the changing business environment in China, including the country’s economic slowdown, operational challenges, and questions about policy direction.

The report show that nearly 20 percent of respondents expect revenue to decline this year, though two-thirds anticipate continued growth.

Companies are responding by doing what would be expected - cutting costs, slowing investment, controlling hiring, but not pulling out.

Despite slowing revenue growth, 90 percent of companies surveyed remain profitable, but at reduced rates that reflect increasing competition, rising costs, and regulatory impediments.

Business confidence continues to soften. Almost three-quarters of companies have an optimistic or somewhat optimistic five-year outlook, the lowest total over the past decade. Pessimism remains low (10%), however.

The report also finds that uncertainty about China’s economic reform policies is undermining business confidence. Even so, China remains a priority market for American companies.

“Ninety percent of companies say China growth prospects are the same or better than other emerging markets,” says USCBC president John Frisbie. “To the American business community, there’s no ignoring the second largest economy in the world.”

Of the Top 10 challenges, six would be improved by a high-standard US-China Bilateral Investment Treaty.

“I anticipate that the ongoing negotiations on the bilateral investment treaty will be high on the agenda for President Obama’s meeting with President Xi Jinping in early September in China,” adds Frisbie.

USCBC estimates that China is a $400 billion market for US companies — tied with Mexico as the second-largest foreign markets for American goods, services, and farm products after Canada — but it should be more.

Addressing market access, intellectual property protection, and level-playing field concerns in China must continue to be a priority during the remainder of the Obama administration and the next president.

 

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