US companies have felt the impact of the global recession on their China operations, but remain optimistic about their prospects in that market, according to a report by the US-China Business Council (USCBC).
"China has been a relatively bright spot for companies in the midst of the global slowdown," says USCBC President John Frisbie. "There is no doubt that the global economic recession has affected US companies' China sales, but the impact has been less than in other markets."
USCBC's survey was conducted in the summer, when global economic data was still looking dim. Survey responses indicate that the recession's impact on the China operations of USCBC member companies has included reduced sales, slowed investment plans, and, for some, workforce reduction. However, 51% of respondents project their revenues in China will grow in 2009, and 84% say their China operations remain profitable.
For the most part, business opportunities from China's large stimulus package have not yet been realized by most USCBC members, although companies in certain sectors, such as infrastructure-related industries, have benefited from stimulus project spending. Indirectly, however, many companies report a general increase in business related to China's overall economic recovery that is driven in part by an expansion of bank lending.
"US companies remain optimistic about their prospects in that market once the recession has passed," Frisbie continues. "Almost 90% of USCBC's members indicate that China remains the top or among the top five priorities for their global investment plans. It remains a marketplace with dynamic development."
Familiar business problems in China remain unresolved, however. Business licensing and intellectual property rights protection remain areas in which foreign companies face problems. And, companies again cited protectionism in China as one of their top 10 concerns, noting in responses to separate questions a trend in PRC policies that favors--or could favor--domestic industries over foreign competitors.
Some highlights of the 2009 survey's findings:
• The overwhelming majority of respondents, 97%, indicated they are primarily in China to access or serve the China market, as opposed to seeking an export platform.
• Nearly half of respondents plan to accelerate their investments in China in the coming year.
• Eighty-four percent of respondents said their China operations were profitable--only slightly lower than in 2008--despite the economic downturn.
• China's currency value was not cited as a concern by any survey respondents--but concerns about protectionism in China (and in the United States) were noted.
• USCBC members pay wages higher than average Chinese wages and bring their global environmental, health, and safety standards to their China operations, which typically exceed local requirements.
The top 10 concerns identified by the report were:
1. Administrative and business licensing
2. Economic downturn's impact on China operations
3. Human resources: Talent recruitment and retention
4. Competition and overcapacity in the China market
5. Market access in services
6. Standards and conformity assessment
7. Developing sales and distribution channels
8. (Tie) Intellectual property rights enforcement
9. (Tie) Transparency
10. Protectionism in China