US firms downbeat on China business amid trade war: Poll

Shoppers at a Beijing outlet of US toy store chain FAO Schwarz in June. Over a quarter of American firms polled said they had redirected investments originally planned for China to other locations. PHOTO: ASSOCIATED PRESS
Shoppers at a Beijing outlet of US toy store chain FAO Schwarz in June. Over a quarter of American firms polled said they had redirected investments originally planned for China to other locations. PHOTO: ASSOCIATED PRESS

Fewer report revenue growth, while five-year optimism sinks

SHANGHAI • The China-US trade war is souring the profit and investment outlook for United States companies operating in the world's second-biggest economy, a survey by a prominent American business association showed.

The annual poll by the American Chamber of Commerce (AmCham) in Shanghai found that while most of its member companies remained profitable last year, the number reporting revenue growth fell. Projections for future revenue also dropped, highlighting the corrosive impact of the escalating tit-for-tat tariffs.

Five-year optimism sunk for the first time since 2015, when China's stock markets nosedived and the authorities fumbled their response.

"Revenue growth projections have lowered, optimism about the future has waned, and many companies are redirecting investment originally planned for China," AmCham said in a report on the survey published yesterday.

The downbeat results come as US and Chinese negotiators prepare to meet in Washington next month in stop-start efforts to de-escalate the year-long trade row.

With little progress to show so far, market expectations for a breakthrough in the discussions are low.

"With no sign of a trade agreement, 2019 will be a difficult year; without a trade deal, 2020 may be worse," the AmCham report said.

Most AmCham member companies were against the use of tariffs to handle trade disputes, with three-quarters of respondents saying they were opposed.

The survey was conducted between June 27 and July 25 - before the latest round of tariff increases took effect - and received 333 responses, AmCham said.

Over a quarter of poll respondents said they had redirected investments originally planned for China to other locations - up 6.9 percentage points from the previous year. South-east Asia was the top destination, followed by India.

Besides the trade war, the slowing Chinese economy clouded the outlook and was named the greatest three-to five-year challenge by almost 60 per cent of companies.

Investment redirection was most prominent in technology, hardware, software and services, with 40 per cent saying they had done so, according to the survey.

Moreover, decreases in investment have accelerated this year, underscoring the pressure on China's economy, which grew at its slowest pace in almost 30 years in the second quarter.

The survey showed a 14.4 percentage point fall in the number of companies anticipating increasing investment, and a 12.2 percentage point increase in the number of companies planning to decrease investment compared with last year.

The gloom was taking a toll on employment.

Nearly 20 per cent of companies said they were cutting headcounts this year, compared with just shy of 10 per cent last year, while the number of companies that said they were increasing headcount slipped by 17.8 percentage points.

Besides the trade war, the slowing Chinese economy clouded the outlook and was named the greatest three-to five-year challenge by almost 60 per cent of companies .

Still, AmCham said there were "pockets of optimism" in its survey results, with corruption and fraud reported to have declined, while government bureaucracy became more efficient and the regulatory environment improved.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 12, 2019, with the headline 'US firms downbeat on China business amid trade war: Poll'. Print Edition | Subscribe