February 11, 2015 – The challenges of doing business in China are increasing, a new survey shows, but foreign companies are nevertheless continuing to localize their operations in the expectation that the difficult transition to a new economic model will be successful and foreign companies will be treated fairly. The Business Climate Survey of American Chamber of Commerce (AmCham China) members, conducted in partnership with Bain & Company, also showed that human resources and regulatory challenges continue to be the top issues troubling AmCham China members. 
“AmCham China member companies are committed to the market but continue to weather a challenging business environment as China continues on a path of economic reform and sustainable development,” said AmCham China Chairman James Zimmerman. “Our companies appreciate the complexities and difficulties that the Chinese leadership is confronted with as it balances its economy and implements its reforms. Nevertheless, much work lies ahead for all of us in 2015 and beyond as the Chinese economy continues to mature.” 
According to the survey, company revenues continued to grow in 2014, but not at the breakneck pace of years past. Still, more than 70 percent of respondents identified their organization as “profitable” or “very profitable,” with 42 percent of companies reporting increasing margins, a lower percentage than in prior years, and 44 percent reported margins comparable to their global average margins. Three of five respondents reported increased revenues from 2013, while about 20 percent reported revenues comparable to the previous year.
With growth leveling off, over 30 percent of companies have no investment expansion planned in 2015, the highest rate since the recession of 2009. Bain analysis of the survey data found AmCham China member companies nevertheless remain optimistic because of sustained economic growth and an increase in domestic consumption. The country’s growing middle class and urbanization are also positive beacons for businesses. This year’s in-depth analysis also reveals differences by sector, with services companies more optimistic than resource and industrial companies on growth opportunities.  
As a result, some companies continue to strengthen their connection with the Chinese economy: One-third of companies now derive over half of their revenues in China from locally designed, developed, or tailored products and services. Moreover, many other companies use China as a base for global growth. Approximately half of companies in R&D intensive industries or Resources & Industrial industries have established R&D centers in China, and almost 40 percent of these companies are using the centers not just for China, but also for a broader set of emerging markets. 
“Business in China is at a turning point, and companies with interests here will have to decide whether to continue pursuing growth and investment in China, or whether to prioritize other growth opportunities,” said Stephen Shih, a Bain partner and co-author of the report. “Those committed to staying the course in China need to ensure their strategies are well adapted to the changing market opportunities and challenges in China.” 
The top two challenges for business were unchanged from the year before: high labor costs and unclear regulations. Nearly one-quarter of AmCham China member companies in the Resources & Industrial category have moved or are planning to move capacity or investments outside of China because of high labor costs. From a regulatory perspective, one-third of respondents reported licensing and government approval processes are becoming more difficult. While more than 85 percent believe that the country’s enforcement of intellectual property rights has improved over the last five years, ineffective enforcement remains a concern for nearly 80 percent; and two-thirds believe the risk of IP and data leaks are greater in China than in other countries.  
Over the last two years, corruption challenges have abated, falling steadily from the fourth-largest concern among executives in 2013 to sixth in 2014, and dropping even further to the 13th most significant challenge in 2015. Rising up the list is protectionism, which ranked among executives’ top five concerns for the first time since 2010. Moreover, about half of survey respondents say they feel less welcome in China. 
Despite these challenges, China remains a top three priority globally for more than 60 percent of members. However, companies are investing in the country at a slower rate, hindered by market access barriers or government policies that executives feel disadvantage foreign companies. Increasingly, respondents describe China as “one among many destinations” for their global investments. The number of companies who described China’s investment environment quality as deteriorating increased substantially to 29 percent, and 31 percent of respondents reported having no plans to expand their investment in China, the highest proportion since the global financial crisis in 2009. 
Reforms such as the US-China Bilateral Investment Treaty (BIT) present a potential boon to business in China as companies look to overcome regulatory issues. More than two-thirds of respondents believe that the BIT would reduce the general complexity of the regulatory environment in China. It could also allow companies to enter new business or product segments, or improve the ability to make acquisitions. 
“The BIT represents a major opportunity to improve the regulatory environment, which could, in turn, enhance the ability of US companies to invest and innovate and compete in China for the benefit of the country’s economy,” Zimmerman said. “The survey as a whole reflects our member companies’ desire to play a positive and constructive role in the development of the country in a manner that is mutually beneficial to our companies and the communities they operate in.”  
This is the 17th year that AmCham China has conducted the Business Climate Survey, which this year elicited nearly 500 responses. For the first time, AmCham China partnered with Bain, which helped construct the survey and analyze the responses.
About AmCham China:
The American Chamber of Commerce in the People's Republic of China (AmCham China) is a non-profit organization which represents US companies and individuals doing business in China. AmCham China has Chapter offices in Dalian, Shenyang, Tiajin and Wuhan. AmCham China's membership comprises more than 3,800 individuals from over 1,000 companies. It has more than 50 industry- and issue-specific forums and committees, offers unique services such as the Business Visa Program, holds a wide range of networking and informational events, and meets with US and Chinese officials to discuss challenges and opportunities facing US firms doing business in China. The Chamber's mission is to help American companies succeed in China through advocacy, information, networking and business support services. For more information, visit: www.amchamchina.org
About Bain & Company 
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For more information, please contact:
AmCham China
Jane Song
Tel: (8610) 8519-0835
Email: jsong@amchamchina.org
Bain & Company
Dan Dai
Tel: +86 21-2211-5570
Email: Dan.Dai@bain.com