Economic Stimulus Spurs Growth but Old and New Regulatory Hurdles Temper U.S. Companies' Long-Term Optimism

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U.S. companies are still successful in China, benefitting from the mid-2016 economic stimulus and stable economic conditions in the run-up to the 19th Party Congress. Manufacturing companies saw profits improve after a weak 2015, but retail and service sector companies performed better, according to the AmCham Shanghai's 2017 China Business Report released at the PwC Innovation Center. 

The report found most U.S. companies remain profitable (77 percent), and 73.5% of companies reported revenue growth in 2016. Seventy-six percent expect revenue growth in 2016, but only 55% of companies increased their investment in 2016, lower than the levels observed two to three years ago of about 64-65%, and 74% in 2013. Five-year optimism levels were flat at 80%, or 10% below the levels observed several years ago.

Sixty percent of our members reported that China's regulatory environment lacks transparency. Lack of IPR protection and enforcement (64%), obtaining required licenses (63%), and data security and protection of commercial secrets (58%), were the top regulatory hindrances.

With the U.S.-China investment playing field still uneven and no significant Chinese market barriers coming down, 40% of respondents believed that the U.S. government should use investment reciprocity as tool to gain greater market access to China for U.S. companies.

The report is based on the results of AmCham Shanghai's 2017 China Business Survey which was done with support from PwC China, one of the longest running surveys of U.S. business in China. This year 426 companies responded to the survey, which included questions about company performance, investment, operational challenges, hiring conditions, and regulatory and trade policy.

"Most American companies are prospering in China, and we hope this trend continues. However, companies are cautious about the long-term, with many unsettled by a regulatory environment that continues to favor domestic firms. In sectors like network security this bias is especially acute, limits Chinese consumers' choice, and deprives them of best-in-class products," said Ker Gibbs, Chairman of AmCham Shanghai.

"American businesses will continue coming to China, but if China wants to keep foreign jobs and investment, it should pay more attention to those companies' concerns."

AmCham Shanghai President Jarrett said that the government still needs to address deeper economic problems and let market forces determine which industries succeed.

"AmCham members benefitted from the economic stimulus of mid-2016, and many industries were more profitable than they were in 2015. Revenues have also recovered. However, short-term stimulus packages won't solve China's deeper economic problems. The government needs to get serious about economic reform and let the market decide which industries succeed," said AmCham Shanghai President Kenneth Jarrett.

"American companies in China are not afraid of local competitors, but they want to compete on a level playing field. This will only happen if China eliminates market barriers and provides a transparent and stable regulatory framework for everyone. Otherwise, calls for reciprocity in U.S.-China trade will get louder."

Mark Gilbraith, Management Consulting leader for PwC China, highlighted the issue of economic reform while also suggesting that U.S. firms are adjusting their business models to become more responsive to market changes.

"While US companies in China are feeling mounting pressure from headquarters to drive growth, they are also facing an increasingly complex China policy and business environment. Without doubt, economic reform is a necessity for American firms to sustain investment and operations in China. In the meantime, they are focused on removing commercial barriers by structuring organizations that are agile and market-responsive," said Mark Gilbraith, Management Consulting leader for PwC China.

About the American Chamber of Commerce in Shanghai

The American Chamber of Commerce in Shanghai (AmCham Shanghai), known as the "Voice of American Business" in China, is one of the largest American Chambers in the Asia Pacific region. Founded in 1915, AmCham Shanghai was the third American Chamber established outside the United States. As a non-profit, non- partisan business organization, AmCham Shanghai is committed to the principles of free trade, open markets, private enterprise and the unrestricted flow of information.