American companies in China are facing a challenging time with historically low profits and diminishing business confidence, as highlighted in a recent report by a U.S. business group. According to the report published by the American Chamber of Commerce in Shanghai, only 66% of the 306 polled companies reported profitability in 2023, marking a record low.
Moreover, the survey revealed that a mere 47% of respondents expressed optimism about their business prospects in China over the next five years, the lowest level in the survey’s more than 20-year history. The strained relations between the U.S. and China, attributed to issues like trade disputes and China’s territorial claims, are exacerbating the challenges faced by American businesses.
China’s domestic economy is also grappling with a slowdown, characterized by weak consumer demand and deflationary pressures, even in the aftermath of the COVID-19 pandemic. The report identified geopolitical tensions between the two countries as the primary obstacle to companies operating in China.
Eric Zheng, the president of AmCham Shanghai, mentioned that the perceived risks associated with doing business in China have intensified in recent years while the market growth has decelerated due to subdued demand and excess capacity. Consequently, many companies are now diverting their investments to other regions such as Vietnam, Malaysia, and South Asia.
The report noted that 25% of the surveyed companies reduced their investments in China in 2023, primarily due to concerns regarding China’s slowing economic expansion. While a little over 50% of U.S. companies anticipate revenue growth compared to the previous year, only 37% expect their growth in China to surpass global growth in the next three to five years.
This report came on the heels of a similar sentiment expressed by the European Union Chamber of Commerce in China, which underscored the escalating risks of conducting business in China. The European Chamber emphasized the need for the Chinese government to implement promised reforms and create a more favorable and less politicized business environment to restore investor confidence.
Jens Eskelund, the president of the European Chamber, emphasized the declining attractiveness of China as an investment destination for some European companies, urging the Chinese government to address these concerns promptly. The European business group emphasized the importance of prioritizing economic growth, implementing reforms, and ensuring a level playing field for all businesses operating in China to sustain investor interest.
