US firms’ confidence in China’s economy is rising, but so are fears over bilateral tensions: survey, SCMP, Apr. 26, 2023.
Kinling Lo in Beijing
AmCham China poll finds a sharp increase in negative sentiment regarding the impact of souring relations between the world’s two largest economies
However, more business executives are visiting China, and more foreigners say they would consider moving to China
The deterioration of bilateral relations is increasingly raising concerns among American businesses operating in China, even as their overall outlook on the Chinese economy is improving, according to the latest survey results from the American Chamber of Commerce (AmCham) in China.
A total of 59 per cent of 109 respondents had a positive outlook on China’s economic recovery in AmCham’s latest “flash survey” conducted from April 18-20, marking a significant increase from 33 per cent in the previous survey results released in March after 319 respondents were polled in October, November and February.
Yet, pessimistic views on bilateral relations have worsened, rising across the two surveys from 73 per cent to 87 per cent.
“In fact, it’s hard to see at this point when they will begin to improve. And this affects the ability of businesses to operate across borders,” AmCham China policy committee chair Lester Ross said on Wednesday, when the latest survey results were released.
In recent months, relations between Beijing and Washing have deteriorated over a raft of outstanding issues such as tech competition and security flashpoints over the Taiwan Strait. And even though recent speeches from US Treasury Secretary Janet Yellen and US Trade Representative Katherine Tai both warned against decoupling from China, there have not been any major policy changes in terms of ties between the two countries.
According to the latest survey, bilateral relations and geopolitical risks now respectively rank first and second among the top-five challenges that businesses see themselves facing. Rounding out the list are the Chinese policy environment; increasing Chinese protectionism; and inconsistent regulatory interpretations with unclear laws and enforcement.
The survey was also conducted after China’s leadership reshuffle in March, when new policies were announced and officials repeatedly stressed their commitment to improving market access and attracting foreign investments.
And the latest findings are said to reflect the sentiment among American businesses operating in China, after its gradual resumption of issuing visas and increasing flights.
China’s economy grew by 4.5 per cent in the first quarter of this year, compared with only 3 per cent for all of 2022. This year, Beijing expects the national gross domestic product to grow by around 5 per cent.
“Once Covid is gone, we’ll go back to the things that initially have been challenging in terms of investment into China over the years,” said Michael Hart, the president of AmCham China.
The report said that 43 per cent of regional and global executives among AmCham’s surveyed members have paid visits to China since December, when China started to lift most coronavirus policies before completely scrapping quarantine requirements for incoming visitors in January.
There is also an improved sentiment among foreign expats in considering whether to return to, or relocate to, China for work. A total of 51 per cent said they would be interested in doing so, despite bilateral relations still topping their considerations, followed by factors such as flight availability and the quality of education their children could receive.
The optimism towards China’s economic recovery, however, did not appear to translate fully into expected potential profitability, when the number of those who were optimistic about their companies’ profit only rose 4 percentage points to 37 per cent in the same period.
China reported a 4.9 per cent year-on-year growth in foreign direct investment during the first quarter of this year, to 408.5 billion yuan (US$59 billion).
The flash report showed that 40 per cent of AmCham members have no plans to change their investments from 2023-25. And more than a quarter – 26 per cent – reported that their plans for the period were uncertain, while 24 per cent said they were planning to increase investments at different levels.
Yet, 17 per cent of AmCham members engaged in tech or research and development said they planned to decrease their investments – the highest total among all sectors.
Most members – 73 per cent- said they had no plans to move their supply chains outside of China, while 23 per cent were either considering relocating or had already started the process.
While this represented only a minor change from the survey in March – when the two respective numbers were reported at 74 per cent and 24 per cent – the latest survey said 27 per cent of companies considering relocation had reprioritised other countries, marking a 21 percentage point increase from the March results.
While Covid restrictions are no longer a concern for AmCham businesses, the AmCham president said that the impact of China’s approach in Covid-control policies could still be felt when it comes to companies making decisions to mitigate future risks in the supply chain.
“When we talk to companies, they say, ‘We don’t want to decouple from China, but we want to de-risk it’,” Hart said, noting that they want to avoid “a single point of failure” by not being overly reliant on a single country or a single supplier.
“The lockdown in Shanghai was a wake-up call for folks,” Hart said, referring to the city’s months-long lockdown last year. “I think it has really focused folks in terms of risk planning.”