Key Points
- Only 47% of U.S. firms are optimistic about their five-year outlook in China, the lowest since 1999.
- The percentage of profitable U.S. firms in China fell to 66% in 2023.
- Geopolitical tensions and the uncertain U.S.-China relationship are major challenges for U.S. businesses.
- 40% of U.S. firms are looking to redirect investments away from China, mainly to Southeast Asia and India.
U.S. businesses are increasingly pessimistic about their future in China. A survey by the American Chamber of Commerce in Shanghai reveals that optimism about their five-year outlook has dropped to its lowest level since 1999. Only 47% of American firms expressed optimism about their five-year business prospects in China, a decline of five percentage points from the previous year. Additionally, only 66% of companies reported being profitable in 2023, marking another record low.
AmCham Shanghai Chairman Allan Gabor attributed the declining profitability to several factors, including weak domestic demand, deflation, and growing geopolitical concerns. “This affects investments and the development of business plans in China,” Gabor noted. The survey, which included 306 U.S. firms across various industries, highlighted a 14% drop in U.S. foreign direct investment in China, falling to $163 billion in 2023.
Geopolitical tensions remain the primary concern for American businesses in China, and the upcoming U.S. presidential election will exacerbate the uncertainty of U.S.-China relations. The U.S. government is expected to finalize its decision on increased tariffs on Chinese products soon.
Proposed tariffs include 100% on electric vehicles, 50% on semiconductors and solar cells, and 25% on lithium-ion batteries. Although these tariffs were initially set to take effect on August 1, their implementation has been delayed twice. In response, China has called for the immediate removal of all U.S. tariffs on Chinese goods and threatened retaliation.
The survey revealed that 66% of respondents view the bilateral relationship as their most significant challenge, while 70% believe it is the greatest obstacle to China’s economic growth. Perceptions of China’s regulatory environment improved slightly, with 35% of firms considering it transparent, up from last year. However, 60% reported favoritism towards local companies.
Meanwhile, 40% of U.S. firms are redirecting or considering redirecting investments initially planned for China, mainly to Southeast Asia and India. This sentiment echoes a recent report by the European Union Chamber of Commerce in China, which stated that the difficulties of operating in China are beginning to outweigh the benefits.
