A new survey of American companies operating in China has indicated that most of them consider the country’s market critical despite fraying bilateral relations, tariffs, economic weakness and lost market share.
Nearly all respondents participating in an annual US-China Business Council survey said they cannot remain globally competitive without their business in the world’s second-largest economy, according to a report about the survey published by the advocacy group on Wednesday.
This is despite the fact that a growing number of US firms report dropping sales, reputational damage and pressure on profitability in the face of growing geopolitical tensions and trade issues and stricter investment restrictions.
Moreover, although leaving China is not viable for many American firms, the group said that fewer than half of survey respondents are optimistic about the future, given persistent concerns over tariffs, China’s deflation and insufficient demand and policy uncertainty.
The survey covered about 130 of the group’s 270 member firms, most of which are large corporations that have been in China for over 20 years, and was conducted between March and May.
Sean Stein, the trade group’s president, in an interview with the Post called for current bilateral trade talks to address issues other than just tariffs and export controls.
“Now it feels like all of the negotiation oxygen is being taken up by tariffs and export controls ... What we need to make sure is if both sides actually do want to have robust American investment in China,” he said.
“There are various places where American or foreign companies generally don’t enjoy the same market access, the same benefits as Chinese companies. One of the real challenges is unequal treatment with Chinese competition,” he said.
Beijing has laid out a reform road map to make investing easier, fairer, less risky, and more profitable for foreign companies.
“Our hope is that the negotiations with the US can help move that process along more quickly, so that investment can recover,” Stein said.
Asked whether there is a change in how the US and China view each other and their negotiating leverage for a lasting, good deal by August 12, when the pause on Trump’s so-called reciprocal tariffs is set to end, Stein pointed to a reckoning on both sides.
“I think both now realise they have the ability to do significant economic harm to the other and that they need to tread carefully on things like weaponising supply chains and exports. That’s very healthy for the two countries to have that common understanding,” he said.
He also said China has become more confident.
“The Chinese now have greater self-confidence and that is going to make it much more difficult for the US to negotiate a deal that it wants to negotiate,” he said.
Stein said he hopes talks can help both sides agree on the value of US and foreign investment in China and of an agreement on how to improve the investment climate.
Beijing released a glowing economic report card this week for the first half of the year, with a 5.3 per cent year-on-year growth, and Stein said that the Chinese economy overall is definitely in “a better place”.
“American companies will almost all tell you the economy is on a more stable footing and is looking better now than it was a year ago.”
The No 2 challenge last year the macro economy, but it has fallen to No 5, he said.
“Part of that is tariffs have heated up ... Certainly the status of the economy is a significant concern, but not so much of a concern as it was last year.”
Commenting on efforts to improve China’s business climate, Stein also said American businesses feel that local governments are doing a good job but on the national level there is more of a “mixed bag”.
“In the main provinces where there’s a lot of investment, local governments are doing a good job engaging multinationals ... But by and large, the business community is still waiting for Beijing to follow through on a number of promised reforms ... There’s still a lot of waiting for Beijing to create a more friendly environment,” he said.
He also said risks and rewards for US business have become less evenly matched in China.
“Risk and reward have to be balanced. On one hand, overall profits are down in China, so rewards are lower for being there; at the same time, risks are higher. That combination equals less investment.”
He also, though, acknowledged progress on easing cybersecurity and data transfer restrictions and making rules more transparent.
Dealing with the strained US-China relationship remains the most pressing challenge cited by surveyed member companies, with 88 per cent of companies citing impacts – up from 79 per cent last year.
Tariffs rose from eighth to second place among all top concerns, with 68 per cent of companies expressing alarm over US President Donald Trump’s April 2 “Liberation Day” tariffs.
The survey found that tariffs have hit manufacturing and technology hardest, with nearly 90 per cent of companies in those industries reporting operational disruptions.
Companies are thus now focused on securing long-term tariff relief, pinning hopes on the negotiations between Washington and Beijing, which have led to a 90-day suspension of duties ending August 12.
The two countries have hammered out a framework deal in trade, with more talks set to continue in coming weeks.
What companies need immediately from the trade talks, the report said, is an end to indiscriminate tariffs and the implementation of policies to enable American companies to compete in China on a level playing field.
“And, of course, predictability,” the report added.
Nevertheless, “the ability to operate in China’s fiercely competitive market remains non-negotiable for American companies”, Stein said in survey comments, allowing them to “access a burgeoning middle class” in China and sharpen “new technologies and practices essential for maintaining global competitiveness”.
While US companies remain committed to China’s long-term potential, the survey warned that without progress made by China to address common complaints, American firms in China will likely see further disinvestment and market share losses.
Also, Washington’s host of harsher enforcement of export controls aimed at throttling China’s rise has had a significant impact on US firms in China too, both in sales and reputation.
Nearly 40 per cent of companies reported being harmed by US export controls, especially in advanced technology products, citing “lost sales, severed customer relationships, and reputational damage in China due to the intensifying perception that US firms are unreliable suppliers”.
The report also cited a 20 per cent increase in sales losses tied to export controls compared to the same period last year, largely driven by new restrictions on semiconductors and high-bandwidth memory.
Chinese industrial policies and subsidies that usually put foreign firms at a disadvantage remain a key complaint.
Nearly one-third of respondents reported declining market share as China accelerated its roll-out of industrial policies and subsidies favouring domestic firms, especially state-owned enterprises. This caused sales losses to Chinese firms for 56 per cent of respondents.
The profitability of US firms in China is under more strain, the survey also found.
China’s economic slowdown, rising overcapacity, and cutthroat price wars are further adding to profitability pressures.
For the first time since 2016, overcapacity ranked among the top 10 challenges for American firms, affecting 42 per cent of respondents – up from 25 per cent last year. Among those affected, 81 per cent reported falling prices.
China’s insufficient domestic demand was also cited as the top constraint on profitability, followed by rising costs related to tariffs. While 82 per cent of companies reported profits in 2024, only 47 per cent expect profit margins in China to match global averages in 2025. - SOUTH CHINA MORNING POST
