More U.S. companies are encountering challenges in maintaining profitability in China compared to the period before the pandemic, raising concerns about their sustained presence in the market.
According to the American Chamber of Commerce in China’s annual survey released on Thursday, 19% of member companies surveyed in 2023 reported higher earnings margins in China compared to their global margins before interest and taxes. This figure marks an increase from the 12% reported in 2022, a time when many businesses faced stringent Covid-19 controls in China.
However, the current figures remain below the 22% to 26% range observed from 2017 to 2021, where U.S. companies reported higher margins in China than globally.
Michael Hart, President of AmCham China, expressed concern about member companies not being profitable, emphasizing that companies are less likely to remain in China if they face financial challenges. He stated, “This is a wake-up call for the Chinese government.”
U.S. Companies Find It More Challenging to Generate Profits in China Compared to Pre-Pandemic Period (Credits: CNBC)
China’s economic growth, once rapid, has slowed in recent years due to the three-year pandemic, a downturn in the real estate market, and a decline in exports. The economic slowdown has led to calls for Beijing to stimulate the economy further, though the nature and scale of these measures remain uncertain.
The survey, which had 343 respondents from various industries, highlighted that 49% of members reported profit margins in China comparable to global margins in 2023, showing a slight increase from 2022 and consistent with 2019 figures.
While 39% of members anticipated increased revenue in China in 2023 compared to the previous year, there is still caution among U.S. companies about investing in China, given slower growth and heightened geopolitical tensions.
Notably, nearly half of the respondents indicated plans to either decrease investment in China or abstain from expanding investment. However, the majority expressed intentions to maintain manufacturing operations in China, though some are considering relocating such capacity outside the country.
The survey also revealed a decline in foreign direct investment in China in 2023, dropping by 8% to 1.13 trillion yuan ($160 billion), the lowest level in three years, according to Ministry of Commerce data.
Amid rising U.S.-China tensions, the top concerns among survey respondents for a fourth consecutive year were the tensions themselves, followed by inconsistent regulatory interpretation, unclear laws, and enforcement.
The survey highlighted challenges faced by members in dealing with Beijing’s cybersecurity rules on data protection, particularly impacting tech and research and development sectors. While Chinese authorities have indicated efforts to create a more predictable environment for businesses, the survey participants expressed the need for tangible progress in this regard.
