US businesses’ optimism in China falls to record low: Survey

SHANGHAI - Political tensions, China’s slowing economic growth and fierce domestic competition are sapping the confidence of US businesses in the country, with optimism about their five-year outlook falling to a record low, a survey showed.

Only 47 per cent of US firms were optimistic about their five-year China business outlook, a drop of 5 percentage points from 2023, according to the survey published on Sept 12 by the American Chamber of Commerce (AmCham) in Shanghai.

This was the weakest level of optimism reported since the AmCham Shanghai annual China business report was introduced in 1999. Also at record lows were the number of firms profitable in 2023, at 66 per cent.

AmCham Shanghai chairman Allan Gabor said the trend in falling profitability was due to a combination of factors.

“It’s domestic demand, it’s deflation, and of course we can’t ignore the membership’s perceptions and concerns about geopolitics,” Mr Gabor said.

“This touches investments and touches operating plans in China in terms of how we develop business plans in China for the future.”

The 306 US firms polled were from a range of industries. US foreign direct investment into China fell 14 per cent to US$163 billion (S$213 billion) in 2023 from the previous year, according to the US State Department.

Geopolitics remains the number one challenge for most American businesses operating in China, with uncertainty about the future of the relationship between the world’s top two economies heightened ahead of the US presidential election.

The US is also soon expected to make its final determination on higher duties for Chinese-made products announced by President Joe Biden in 2024. The 100 per cent tariffs on electric vehicles, 50 per cent on semiconductors and solar cells, and 25 per cent on lithium-ion batteries, among others, were due to take effect on Aug 1, but have twice been delayed.

In response, China has urged the US to immediately lift all tariffs on Chinese goods and vowed retaliation.

The bilateral relationship was cited by 66 per cent of respondents as their biggest challenge and by 70 per cent as the greatest challenge to China’s economic growth.

On a marginally positive note, there was a slight uptick from 2023 – to 35 per cent – in businesses reported believing China’s regulatory environment is transparent. However, there was also a rise to 60 per cent in companies that reported favouritism toward local companies.

The same proportion of US firms as in 2023, 40 per cent, are currently redirecting or looking to redirect investment that had been earmarked for China, the AmCham report said, mainly to South-east Asia, but also to India.

The declining sentiment of US businesses echoed a paper published by the European Union Chamber of Commerce in China on Sept 11 that said the challenges of doing business in the country were starting to outweigh the returns. REUTERS