U.S. businesses in China are voicing increased concern about unclear laws, perceived antiforeign sentiment and industrial overcapacity, adding to worries about uncertainty over the slowing Chinese economy.
An annual survey of members of the American Chamber of Commerce in China released Wednesday found that companies see the business environment getting tougher. Of the 496 companies that responded to the survey, about 57%–including those in technology, consumer and service sectors–say their top challenges in China are inconsistent regulatory practices and murky laws. One in 10 companies plan to move or have moved a portion of their business outside of China due to regulatory obstacles, the survey said.
Most companies believe that antiforeign sentiment from the government is growing, the survey said, noting that 77% of companies feel less welcome now than they did a year ago, compared with 47% a year earlier and 44% in 2014. Technology, industrial and resource companies stood out as the most negative, with 83% saying they felt less welcome. And 44% of technology companies said they are pessimistic about the future regulatory environment.
Chinese officials all the way up to President Xi Jinping have said they would protect the rights of foreign companies doing business in the country. Within the last several years, China’s leaders have said they were developing a more market-led economy, strengthening the rule of law and creating a level corporate playing field.
Despite these concerns, 68% of companies in the American Chamber of Commerce survey say they will still increase investment in China. Yet 32% said they have no plans to make fresh investments in the country–the highest level since the global financial crisis–and up from 27% in 2014. In the service sector, 61% of the companies said government policy changes helped their business.
At the same time, U.S. and other foreign companies feel they face a chillier climate in China. A similar survey of European businesses released in June also found souring sentiment amid a slowing economy and regulatory hurdles.
Chinese leaders are strengthening homegrown companies to compete against foreign multinationals. The government has been more assertive in pressing pricing and antimonopoly investigations and has drafted rules and passed national security legislation that require technology firms to provide proprietary information and share source codes.
“The issue really is–is your system fair and transparent?” said the American chamber’s chairman, James Zimmerman. He said American companies “will need to revise their strategies to ensure profitable growth in China.”
The American chamber’s survey on business climate in China didn’t name any specific companies that were polled.
For the first time in the annual survey’s 18 years, companies said they are alarmed by industrial overcapacity. Subsidies have encouraged some industrial firms to continue production despite weak demand and then they sell the products on overseas markets, flooding them everything from steel to tires and driving down prices.
Companies say their revenues and profits dwindled in 2015, with 13% facing losses and 23% breaking even. Still, 64% turned a profit in 2015, down from 73% in 2014.
Other complaints from foreign companies included rising labor costs, risks of data breaches and Internet censorship and online controls. Air pollution in major Chinese cities also impeded 52% of companies’ efforts to attract senior executives to work in China, the survey said.