Sept. 2, 2014 –Many encouraging signs of economic reform have emerged over the past year, the American Chamber of Commerce in China said today in a new report on the investment environment in China, yet the promise of the reform agenda has yet to be realized. In fact, Challenges and Opportunities in China’s Investment Environment: 2014 suggests that many important sectors of the economy continue to be short of much-needed investment because of onerous laws, regulations and practices.
With the economy slowing and foreign companies coming under increasing government scrutiny, the still-chilly investment environment is contributing to an increasing sense of pessimism among foreign multinational companies in China. This is reflected in a new survey showing that a majority of AmCham China members feel less welcome than before and almost half believe that foreign companies are being targeted, with the risk increasing that China will permanently lose its luster as a desirable investment destination.
“As China’s economy rebalances from a state-led model based on exports and investment to a market-led model based on services and consumption, a difficult transition is to be expected for all private sector companies in China,” said AmCham China Chairman Gregory Gilligan. “Today’s update on our view of the investment environment, combined with what we are hearing from our members, demonstrates that the transition is indeed disruptive, perhaps more so for foreign companies, and progress on reform has been disappointingly slow.
“Since we analyzed the investment environment last year, there have been many encouraging promises of reform, but the environment for many foreign companies has nevertheless deteriorated. While we still believe in China’s ability to make the changes necessary to transition to the next stage of development, delays and disruptions are leading foreign investors to alter their perceptions of the China market in fundamental ways.”
Reflecting this urgency, this year’s report not only updates recommendations from last year, but also offers a timeframe of reform, with some reforms possible now and others tied to developments in the China (Shanghai) Pilot Free-Trade Zone and a bilateral investment treaty now being negotiated between China and the United States. The report highlights some of the limited reforms made so far, as well as ongoing regulatory issues at both a macro and industry-specific level.
The report’s release comes amid heightened interest in foreign multinational corporations from both the government and media. To reassess its members’ sentiment, the chamber conducted a short survey at the end of August that repeated some of the questions asked in the annual Business Climate Survey it held late last year. The results showed that 60 percent of respondents feel foreign business is less welcome in China than before, and 49 percent believe foreign firms are being singled out in recent pricing or anti-corruption campaigns.
“Our members have been and remain enthusiastic supporters of China’s integration into the global economy, but sadly this survey suggests that their positive sentiment is eroding,” Gilligan said. “Our concern is that if the investment environment deteriorates too far, important relationships and linkages between China and the rest of the world will be materially damaged, seriously impairing China’s ability to attract the investment that will be crucial in taking the country to the next stage of economic development.
“We still believe that China’s economy will emerge from this difficult period stronger than before, and US companies in particular have a great deal to offer in the services sector so crucial to the economy’s transformation. We will be closely watching the upcoming Fourth Plenum, and hope to see concrete moves toward creating a society based on the rule of law, rather than rule by law,” Gilligan said.
“Our members are heavily invested in China’s future, and the chamber looks forward to continuing dialogue with the Chinese government on finding ways to help the economy rebalance as efficiently as possible,” Gilligan concluded.
To access the report, please click here.