- Companies are contending with COVID-19 restrictions, rising US-China tensions, and an uncertain China policy environment.
- China remains a top priority for US companies, but most are hesitant to increase investment due to growing pessimism and uncertainties
Beijing, March 8, 2022 – US companies in China reported a mixed picture, balancing slightly improved business performance last year with growing uncertainty about the future of China’s business environment, according to a new survey released by the American Chamber of Commerce in China (“AmCham China”). While 2021 revenue and profitability rebounded compared to 2020, they have yet to return to pre-pandemic levels. AmCham China member companies continue to be optimistic about their opportunities in China, but multiple challenges – including sustained air travel disruptions, an increasingly uncertain regulatory environment, difficulty attracting and retaining talent, and the strained US-China relationship – have seen the level of optimism decline.
The Chamber’s annual Business Climate Survey (BCS) Report found that China remains a top global priority for many members but most are not planning significant investments in 2022. This is the 24th consecutive year that AmCham China has surveyed its members on China’s business climate, with the results providing invaluable insight into the longer-term trajectory of China’s corporate environment. The BCS results represent around half of the Chamber’s member companies and highlight the impact of COVID-19, regulatory developments, and US-China tensions on member companies.
“We are delighted to have partnered with PwC for the 24th annual edition of our 2022 China Business Climate Survey (BCS) Report,” said AmCham China Chairman Colm Rafferty. “This report is a key barometer of the sentiment of the American business community in China and provides an accurate and nuanced view of the opportunities and challenges our member companies have on the ground in China. The last few years have been particularly challenging. However, revenue and profitability for American companies is on the rebound, and participation in China’s dynamic and growing economy remains a top priority for our members. The Chamber’s mission is to help American companies succeed in China through advocacy, networking, insights, and business support services, and our member companies believe that American business in China benefits both the United States and Chinese economies.”
More than half of members say their 2021 revenues were higher than 2020, reversing a trend from the last few years. However, the impacts of COVID-19, especially the intermittent lockdowns to control local outbreaks, continue to negatively impact revenues, according to two-thirds of members. Compared to the last five years, 2021 saw the highest proportion of companies estimating that they will be “very profitable” at 13%, compared to only 5% in 2020 and earlier. But while the proportion of companies who reported an increase in profitability has grown from 54% in 2020 to 59% in 2021, this fails to match the 73% of companies that reported profitability in 2017 before the pandemic and escalation of the US-China trade war.
Companies continue to rely on China’s market for growth of their global business. Nearly two-thirds of companies rank China as the top or a top-three priority for near-term global investment. But the wider context shows an otherwise pessimistic outlook. In the two-year outlook, there was an 11 percentage points (pp) decline in optimism related to domestic market growth and an 18pp decline related to economic growth and recovery. Less than half of companies (47%) are confident in the Chinese government’s commitment to further open China’s market to foreign investment in the coming three years (down 14pp from last year), while 61% say they would plan to increase investment in China if market access is on par with what is allowed in the US.
The regulatory environment is one of the key factors driving pessimism for doing business in China, according to 40% of members (up 16pp from last year). China’s recent regulatory actions addressing anti-trust issues, data privacy, and social concerns are impacting 79% of member companies. Some 82% of members say the policy and regulatory conditions in China remain a roadblock to investment, while 78% of respondents report that they would consider increasing investment in local operations if China improved policies to ensure greater protection of intellectual property.
Almost half of members report feeling “less welcome” in China (up 9pp from last year). The portion of companies feeling “much less welcome” more than doubled from 6% in 2020 to 15% in 2021. Additionally, 42% of members report an uptick in pressures to make (or not make) statements about politically sensitive issues. Two-thirds of members who feel political pressures cite the Chinese government as the main source of pressure to speak out and make (or not make) statements on politically sensitive issues, followed by the Chinese media (38%). One-third of members say they have also received similar pressure from the US government, with companies noting that this dynamic is increasingly challenging to manage.
The COVID-19 pandemic continues to disrupt the operations of companies. When asked to list the top impacts of the pandemic on 2021 business operations, 94% cited global business travel disruptions, 74% cited rising international transportation costs, 58% cited rising cost of products and services, and 49% cited difficulty recruiting local and expat staff. COVID-related travel restrictions also impact the retention and recruitment of foreign nationals who are opting to leave China or not accept jobs here. The top challenge to retain and recruit expatriate talent in China, cited by 76% of members, is “qualified candidates unable to move to China”, up 39pp from last year. Additionally, 30% listed “qualified candidates unwilling to move to China”, up 12pp from last year, presenting a key problem for members’ talent strategies.
The survey also found:
- Rising tensions in US-China relations (cited by 56% of respondents) is the top business challenge for members, followed by inconsistent/unclear laws and regulations and/or their enforcement (31%), and rising labor costs (29%).
- 73% of members expect US-China relations to either stay the same or deteriorate in 2022.
- 49% cited attracting and retaining talent as their top HR priority for 2022 (up 30pp from last year).
- Bilateral tensions were cited for the first time as a top factor specifically contributing to HR challenges.
- Top recommendations members had for the US government include refraining from engaging in aggressive rhetoric and tit-for-tat actions (41%), pursuing a results-oriented framework for regularized government-to-government communication (29%), and an in-person meeting between Presidents Biden and Xi (23%).
- Top recommendations members had for the Chinese government include ensuring a level playing field for US businesses in China (24%), restoring regular visa processing services and providing a channel for US citizen employees and their dependents to return to China (22%), and accelerating the resumption of international flight services/approvals (21%).
- Cybersecurity was also cited as a significant challenge, with 72% of members in the Technology and R&D sector saying their company’s competitiveness and operations in China were negatively affected by cybersecurity rules on the protection of critical information infrastructure and important data.
About AmCham China – US-China Business: The Next 100 Years
The American Chamber of Commerce in the People’s Republic of China (AmCham China) is a non-profit, non-governmental organization whose membership comprises tens of thousands of individuals from nearly 1,000 companies operating across China.
The Chamber’s nationwide mission is to help American companies succeed in China through advocacy, networking, insights, and business support services. AmCham China is officially registered as a foreign chamber of commerce in China and is licensed by China’s government to represent American business in mainland China. In addition to our headquarters in Beijing, AmCham China serves Tianjin, Central China, and Northeast China through our Chapters in Tianjin, Dalian, Shenyang, and Wuhan. Across the five offices, AmCham China has more than 30 working groups, and holds more than 150 events each year. Visit the Chamber’s website at www.amchamchina.org
For more information, please contact:
Mark Dreyer, Marketing & Communications Director, AmCham China