As the trade war between China and the USA rages on, a survey of American firms operating in China just published says that business confidence in the future has weakened considerably, but that China remains that most tantalising of markets.
Conducted by the American Chamber of Commerce in Shanghai, the 2019 China Business Report report is based on the results of the Chamber’s annual China Business Climate Survey, a survey of US business in China dating back to 1999. Reflecting views and insights of member companies based on their considerable experience doing business in the China market, some 333 AmCham Shanghai members participated in the 2019 survey.
First up, the numbers, as they relate to US business performance in China in 2018, among members of the American Chamber of Commerce that participated in the Survey.
- 51 percent of companies reported a decrease in revenues as a result of trade war tariffs.
- 27.1 percent of companies anticipate lower revenues.
- 5-year optimism dropped by one fifth to 61.4 percent, against historical rates of 80-90 percent.
- Over the next 3-5 years, 57.8 percent of AmCham members rated an economic slowdown as their biggest challenge, with US-China tensions a close second (52.7 percent).
- 17 percent of companies think the current US-China trade tensions will continue indefinitely.
- 75 percent of companies do not support the retaliatory use of tariffs to achieve the Trump administration’s trade goals.
- 53 percent of companies would prefer to use expanded government dialogue and multilateral pressure (e.g. working alongside the EU) to help the US achieve its trade and investment objectives with China.
- As a result of the tariffs, 32.3 percent of companies reported delaying investment in China, while another 21.1 percent are reducing investment.
As for outcomes of the trade war which the survey participants would most like to see, tops by a long way were improved market access and intellectual property protection.
Away from the trade war, the survey also revealed interesting insights in other areas that suggest all is not doom and gloom. Overall, 76.8 percent of companies reported profits, while 50.5 percent of companies expect revenues to beat their 2018 numbers.
The operational environment in China is also pointed out for making progress. In particular, the ongoing anti-corruption campaign led to a 20 percentage-point drop in the number of companies reporting such a hindrance (down to 48.6 percent).
On the negative side, almost 70 percent of the 333 respondents believe their Chinese competitors to be faster at bringing products to market. As to why, the report says, “One reason may be that decisions in Chinese firms tend to be less consensus-based. But a lack of understanding of the Chinese market at Western companies’ headquarters is also a contributory factor. … with decisions slowed by executives unwilling to cede decision-making authority to in-country managers”.
By way of analysis, it is worth noting that 81 percent of Chamber member companies have had a physical presence in China for more than 10 years (35 percent for more than 20 years). As such, the overwhelming majority of AmCham’s members have sufficient experience in China to see the trade war for what it is. Business, after all, will rarely allow politics to interfere in the process of returning profits.
Conducted between 27 June and 25 July, 2019, the China Business Climate Survey comprised questions intended to measure trends in company performance, challenges and investment, as well as those relating to trade policy, tariffs and HR numbers.
The Survey was released 1 day before China and the US agreed to their restarting of talks during the G20 meeting, 7 weeks after the US’s raising of tariffs to 25 percent on $200 billion of Chinese exports.