U.S. companies operating in China are increasingly profitable, but the ongoing trade dispute is putting at risk years of steady progress. While no mass exodus from China is expected, continued tensions in the U.S.-China relationship, an uneven playing field and simmering retaliatory actions by Chinese authorities against American companies are creating an increasingly uncertain commercial environment, according to a report published by The US-China Business Council (USCBC), Washington, D.C.
“The optimism that member companies can continue to participate in China’s future economic growth and development as both contributor and beneficiary is colliding with troubling new realities,” says Craig Allen, president.
Nevertheless, 97% of member companies reported increased profitability in China in 2019.
“It’s very important for these companies’ worldwide competitiveness to be in China and to be successful there,” says Allen. “Profits generated in China support and create jobs in the U.S., so setbacks there will create setbacks here.”
Still, profits could be better
U.S. companies have done well in China despite numerous and mounting regulatory challenges. But, profitability could be even higher, if China addressed long-standing barriers to market access that crimp U.S. company operations, says Allen.
Competition with Chinese companies on an uneven playing field is a core concern. U.S. companies cited delayed or denied licenses and approvals by the Chinese government, restrictions on data flows, insufficient intellectual property rights enforcement, uneven enforcement of rules and regulations, discriminatory innovation policies and investment restrictions on U.S. and other foreign companies.
The survey also highlights trade frictions and government actions as harming U.S. company competitiveness in the China market, with 80% of member companies reporting an adverse effect. This has been felt in ways not reported in previous years—companies have lost sales due to tariffs, doubts of continued supply and fading confidence in U.S. companies as reliable suppliers. Instead, the steady erosion of U.S. company market share has benefitted European, Japanese and Chinese companies.
Shaky prospects for the future
Only 20% of member companies are optimistic about their prospects in China five years from now, the lowest level since the survey began.
In the short term, the best hope is for trade negotiators to resume their work with a renewed sense of urgency to conclude an agreement that addresses the concerns of U.S. businesses, workers and farmers, and creates a mechanism for long-term engagement on the challenging issues highlighted in the survey.
The survey was conducted in June, before the latest tariff increase on more Chinese imports.