U.S. COMPANIES IN CHINA INCREASINGLY UPBEAT ON ECONOMY DESPITE ONGOING REGULATORY CHALLENGES

Latest AmCham China survey developed in collaboration with Bain & Company also finds greater optimism about future of U.S.-China relations

Beijing – January 30, 2018 – Confidence within the American business community toward China’s economy is strengthening, despite significant concerns about the regulatory environment, according to a new survey released today by the American Chamber of Commerce in China in partnership with Bain & Company.

The 20th edition of the China Business Climate Survey Report also shows increasing optimism in U.S.-China relations despite the possibility of Trump Administration action against Chinese trade and investment practices. Some 36 percent of respondents believe relations between the two countries will improve this year, compared with 17 percent last year, possibly influenced by the perceived success of President Trump’s visit to China and that of President Xi Jinping’s earlier trip to the U.S.

“Regarding the economy, there is cautious optimism that the ‘new normal’ rate of growth is sustainable for the foreseeable future, providing opportunities for business to expand,” said William Zarit, Chairman of the American Chamber of Commerce in China. “Nevertheless, the survey continues to paint a troubling picture of the regulatory environment in China. The best that can be said of this year’s data is that there appears to be a bottoming out of sentiment from the very low levels plumbed over the past few years. There continue to be challenges and areas of disagreement, but by offering our candid assessment of the environment our members operate in, we hope we can contribute to the healthier and more sustainable development of China’s economy.”

This is the 20th year that AmCham China has surveyed its members on the business environment in China, and the fourth year it has partnered with Bain for data collection and in-depth analysis. This survey was conducted between Oct. 23 and Nov. 26, 2017, and was sent to 849 member company representatives, of which 411 completed a significant portion.

For many member companies, 2017 represented a recovery in terms of performance. Some 64 percent of them reported revenue growth, up from 58 percent last year and 55 percent in 2015. For 2018, the average forecast for GDP growth was 6.3 percent, up from the 2017 prediction. Nearly six in 10 companies rank China among their top three investment priorities, up from the previous year but still below the historical average.

On the other hand, regulation remains a concern for many, with 75 percent of members continuing to feel foreign companies are less welcome in China than they have been in the past. Although down from 55 percent last year, some 46 percent feel foreign companies are treated unfairly compared to local companies and, for the third year running, respondents cited inconsistent regulatory interpretation/unclear laws and enforcement as the top challenge to doing business in China. For the first time, compliance risks made the list of the top challenges companies expect to face in 2018.

Increased regulatory fairness, predictability and greater transparency are the steps respondents say would have the greatest impact on their level of investment in China. Specific reforms members would like to see include greater access to officials and consistent implementation of national policies at the local level. Some 46 percent of respondents are confident the government will further open China’s market to foreign investment within the next three years, up from 34 percent last year.

“Facing a market with so many uncertainties — and domestic competitors that continue to grow stronger — foreign companies must increase their organizational agility in China,” said Stephen Shih, a Bain partner based in Shanghai. “They need to grasp opportunities in innovation and digital and be able to respond to rapid and unpredictable changes in the regulatory and competitive environments. New organizational models and ways of working are likely to become an imperative in the next chapter of growth for foreign businesses in China.”

The survey also found:

• One-third of members plan to expand their investment in China by more than 10 percent in 2018
• 45 percent of respondents report domestic competitors are more attractive to job hunters, up from 36 percent last year
• Rising costs and changes in the regulatory environment are the prime reasons 23 percent of respondents say they have moved or plan to move capacity from China
• 67 percent of Consumer companies see China as either the leading edge of digital technology in their field or more advanced than other markets

Editor's Note: To arrange an interview, contact Nicholas Worley at nicholas.worley@bain.com or +852 2978 8830

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