Night view of the Lujiazui financial district in downtown Shanghai.
Yongyuan Dai | E+ | Getty Images
American companies in China are experiencing historically low business confidence and poor profits amid U.S.-China tensions and a slowing Chinese economy.
In an annual report released Thursday, the American Chamber of Commerce in Shanghai found that out of the 306 of its member companies surveyed, only 66% were profitable in 2023, the lowest level on record.
The survey also showed that key confidence metrics were at their poorest ever point. Only 47% of respondents reported optimism about their five-year business outlook in China, while a record high of 25% cut investment in the country last year.
China’s slowing economy was listed as the top reason for members’ decreased investment. Meanwhile, the strained relationship between Washington and Beijing as well as geopolitical tensions were seen as the biggest challenges to both their business operations and the Chinese economy at large.
“Increasing geopolitical pressures, particularly in the run-up to the U.S. election amid escalating trade tensions, and China’s economic slowdown are leading firms to ramp up risk management and adjust their investment strategies,” the chamber said in a statement.
The report comes amid a number of signs that the world’s second-largest economy is losing luster amongst Western businesses.
While geopolitical tensions, tough regulations and censorship have long been risk factors for these firms, the country’s struggling economy has increasingly emerged as a major concern.
According to a member survey released by the U.S.-China Business Council, China’s macroeconomic woes ranked as the second highest concern among American companies this summer, behind only U.S.-China relations.
Similar to the AmCham Shanghai survey, the council found that more companies than ever are pessimistic about their medium-term business outlook in China, with factors like “weak domestic demand” and “overcapacity” constraining profitability.
Firms have also lost market share to Chinese competitors which have received more government support, the U.S.-China Business Council added.
Their struggles in China have also been felt by EU businesses, according to an EU Chamber of Commerce in China report released on Wednesday.
The group said that its companies were at a “tipping point” on whether to invest more in China amid low-profit margins and a poor outlook, and urged Beijing to act if it wants the companies to invest further.
The slew of negative reports from Western business groups suggest that recent efforts by Beijing to improve conditions for foreign businesses and attract more foreign investment have fallen flat.
In a statement about the AmCham Shanghai survey, Chair Allan Gabor said “this year’s data indicates that while many positive policies have been announced, they have yet to fully restore confidence among private businesses or consumers in general.”
While a higher rate of AmCham members in the survey noted improvements in government policies and regulations as compared to the previous year, only 22% of respondents expressed confidence in Beijing’s commitment to further opening up their industry in the short-term.
However, “though foreign companies face increasing economic headwinds and fierce competition, staying in China is crucial for them to remain globally competitive,” Jeff Yuan, Tax Markets Leader at PwC China, said in the release.
On how the U.S. government could support their firms in China, nearly half of AmCham respondents suggested a reduction of tariffs on Chinese goods.
Foreign direct investment into China fell by 29.6% during the January to July period compared to a year ago, according to China’s Ministry of Commerce.
– CNBC’s Evelyn Cheng contributed to this report
